As a business owner, you likely have multiple banking relationships to manage. While it may seem tedious, it's essential to consider your banking relationships and understand the risks and benefits associated with each one. We'll discuss some important factors to consider when evaluating your banking relationships.
FDIC Insurance Limits
First and foremost, it's crucial to understand the FDIC insurance limits. The Federal Deposit Insurance Corporation (FDIC) is an independent government agency that provides insurance coverage to depositors in case a bank fails. The current insurance limit is $250,000 per depositor, per insured bank, for each account ownership category.
As a business owner, it's essential to ensure that your deposits are protected by FDIC insurance. If you have more than $250,000 in a single bank account, you should consider spreading your funds across multiple banks so all funds are FDIC-insured.
Recently, there's been speculation about whether the FDIC should increase insurance limits temporarily, due to the events of the Silicon Valley Bank collapse. The reason is that other regional banks have shown vulnerabilities, with First Republic Bank being a prime example as they were forced to borrow over $30B from large banks like JP Morgan, Wells Fargo, Bank of America, etc.
Relationship Manager or Account Manager
As you begin some of these relationships, you'll want to identify the account manager, as they will be invaluable during your partnership. We noticed in the midst of the pandemic, many businesses learned the hard way that having good banking relationships is essential. Often, the point of contact at your bank is familiar with your business and can help you navigate financial challenges. This type of service is invaluable for many reasons, but most importantly, ensuring your business is in good standing with the bank.
Retention Rates
A retention rate is a special interest rate or promotion that a bank may offer to customers who are considering leaving their bank or closing their accounts. The goal is to entice customers to stay with the bank by offering a better deal than what they would receive elsewhere.
If you have a significant amount of savings in your business account, it's worth calling your bank and asking if they can increase the rate because they will work with you in finding a rate that you may find appealing. In many cases, banks will be willing to negotiate a higher interest rate or provide additional perks to keep your business. This is especially true if you are a long-term customer or have a substantial amount of money on deposit.
Connecting Technology Systems
Should you consider the technological aspect when searching for a bank? The answer is yes, technology is just as important a consideration when evaluating banking relationships. One with a robust online banking platform can save you time and money by allowing you to manage your accounts and transactions easily.
How can you do this? Ask around, or you can find a link below with some of the highest-rated online banking systems. It's critical to ask about their Quickbooks Online feeds, as this can impact your accounting processes significantly. With a bad connection, you will encounter constant problems accounting for all of your transactions, leading to problems down the road.
Money Market Accounts vs. CD Ladders
Here is what you need to know about the difference between money market accounts and CD ladders. By understanding both, you can make informed decisions about your banking relationships moving forward.
Money market accounts usually require a higher minimum balance than savings accounts, but also provide more flexibility in terms of withdrawals and transfers. In general, MMAs allow up to six withdrawals or transfers per month, and they may have limited check-writing capabilities.
A CD ladder is a financial strategy that involves dividing a sum of money into several certificates of deposit (CDs) with varying maturity dates. The goal of a CD ladder is to balance the benefits of higher interest rates on longer-term CDs with the flexibility of having access to a portion of your savings on a regular basis.
When discussing your options with your banker, consider the FDIC insurance limits and how they apply to each type of account.
Credit Cards vs. Debit Cards
Finally, it's essential to consider your payment methods. Credit card for business transactions offers several advantages over using a debit card.
Credit card usage - The bank is responsible for any fraudulent charges, which helps in protecting your business account from being breached. Additionally, using a credit card can help you build your business credit score. Going back to making those bank relationships, a high credit score for your business will help with future lending opportunities.
Debit card - Why should you almost never use your debit card? Your savings accounts can be exposed to fraud making it challenging to dispute fraudulent charges and other unauthorized changes.
We ask that you carefully analyze your bank relationships. When you decide to prospect some banks, consider all that is listed above because you will have an informed decision on what's best for you and your business in the long run.
If you have questions, reach out and we will be more than happy to provide you with valuable information giving you a better understanding of what this information means for you.
Resources:
the balance: Best Banks for Small Businesses
Washington Posts: U.S. officials weigh protecting all deposits at Silicon Valley Bank