In early 2023, the Silicon Valley Bank (SVB) situation exposed a risk that many business owners take when they deposit all their funds at a single bank. The FDIC insures up to $250,000 per depositor per FDIC-insured bank, but a number of businesses had significantly more than that at SVB. Even though the Fed has decided to protect SVB customers’ full balances, holding more than the FDIC insurance limit at a single bank can still come with risk.
Luckily, sweep networks are a potential solution to the problem—offering deposit protection and peace of mind to businesses.
What is a sweep network?
A sweep network is an organization that distributes business deposits across multiple banks so customers can get higher FDIC deposit insurance coverage. There are several of these networks currently operating within the banking sector. Sweep networks allow depositors to get expanded coverage for their deposits, while still only maintaining one banking relationship.
An example of this would be a business depositing $1 million into a single business checking account. The FDIC insures $250,000 of the depositor’s funds held at that bank. If the depositor gives the authorization for their bank to use a sweep network, the remaining $750,000 can be spread across three additional banks, giving the depositor full FDIC coverage for the entire $1 million.
How can a sweep network benefit my business?
There are several benefits to using a sweep network, but your bank needs to partner with one of these networks for you to take advantage of it. Check with your banking representative or account manager to see if the option is available. Here’s how it can benefit you:
Increased FDIC coverage
This is the most obvious benefit. Spreading your money across multiple banks gives you up to $250,000 in FDIC coverage per bank. Many small- to medium-sized businesses have more than that in their accounts. Protecting as much of it as possible is just good business.
Extra peace of mind
Increasing the FDIC insurance limit by using multiple banks provides peace of mind that can’t be expressed on a balance sheet. That comes from knowing your money is safe and not having to manage multiple banking relationships. Sweep networks simplify banking for you, letting you continue to manage your money from the account you know and trust.
Reduced risk in the event of a bank failure
When banks fail, depositors are at risk. Sweep networks reduce that risk by spreading your money around. Even if one of the network member banks fails, keeping deposits at each of them under $250,000 ensures that FDIC coverage is sufficient to reimburse you.
Unaltered banking experience
A key benefit to using a sweep network is that your banking experience doesn’t change. You’ll need to give authorization for the bank to activate the network—or at least be given the opportunity to opt out—but you’ll still be able to manage your funds using your primary business checking account. Deposit and withdrawal processes and speeds won’t change.
How do sweep networks help increase FDIC coverage?
This is simple math. The FDIC insurance limit per depositor per bank is $250,000. Multiply that by the number of banks your funds are distributed to. Many sweep networks offer $3 million to $5 million in FDIC coverage, while some larger networks with hundreds of banks can offer commercial clients $50 million or more in FDIC insurance.
Sweep networks are critically important to businesses whose deposits eclipse the $250,000 mark. There have only been three bank failures in 2023, but with ongoing economic uncertainty, why take the risk?
What if I don’t want to use a sweep network for my deposits?
The bank where you have your business checking account should allow you to opt out of using the sweep network. Unfortunately, if you choose to do that, your account will likely only be covered with up to the standard $250,000 in FDIC insurance. That exposes you to unnecessary risk. Speak to your bank about your options in this area. Sweep networks can protect more of your money and give you the confidence you need to grow and scale your business.
The business checking account designed for small businesses.