By: Robert Moore, Friday, May 12th, 2023

Legal Groundwork

The recent failures of three banks may have some farmers concerned about the security of their cash reserves.   Many farms hold large reserves of cash, the loss of which would be financially devastating.  The federal government does provide protection through the FDIC but not all financial institutions participate in FDIC, not all account types are covered and there are limits to the protection.  However, with a little bit of planning, even large amounts of cash can be fully protected from bank failures.



The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation’s financial system. The FDIC insures deposits and examines and supervises financial institutions for safety, soundness, and consumer protection.  FDIC deposit insurance coverage depends on two things: (1) whether your bank is FDIC-insured and (2) whether your chosen financial product is a deposit product.  If a bank fails, the FDIC will immediately ensure that holders of eligible accounts will receive their funds subject to coverage limits.  To determine if a specific financial institution participates in FDIC, the name of the bank can be searched in the following database:  https://banks.data.fdic.gov/bankfind-suite/bankfind.


Eligible Accounts

The following accounts are eligible for FDIC coverage:

  • Checking accounts
  • Savings accounts
  • Money Market Deposit Accounts (MMDAs)
  • Time deposits such as certificates of deposit (CDs)
  • Cashier's checks, money orders, and other official items issued by a bank

Accounts that are not eligible for FDIC coverage are as follows:

  • Stock investments
  • Bond investments
  • Mutual funds
  • Crypto Assets
  • Life insurance policies
  • Annuities
  • Municipal securities
  • Safe deposit boxes or their contents
  • U.S. Treasury bills, bonds or notes1


Coverage Limits

FDIC coverage is not unlimited.  Generally, coverage is capped at $250,000 but can be more depending on the type of account and number of owners/beneficiaries.  The coverage limit for each type of account is as follows:

Single Accounts (Owned by One Person)                  $250,000

Joint Accounts (Owned by Two or More Persons)      $250,000 per co-owner

Corporation, Partnership Accounts                             $250,000

Revocable Trust Accounts                                          $250,000 per owner per unique beneficiary

Irrevocable Trust Accounts                                         $250,000 for each unique beneficiary

Government Accounts                                                $250,000


Strategies to Insure Large Reserves of Cash

The account restrictions and coverage limits can be problematic for many farms.  It is not uncommon for farms to hold more than $250,000 in a single account to buy inputs, buy the next farm or as a reserve for lean times.  Consider the following example:

Farmer has $1,000,000 in his individual savings account at Bank Co.  If Bank Co. were to fail, FDIC would only protect $250,000 of his $1,000,000, leaving $750,000 unprotected and at risk.

The following are a few strategies that can be used to insure large cash reserves:

Bank Networks.  Some banks are part of a network that allow eligible accounts to be set up at other, cooperating banks.  The primary bank establishes eligible accounts at other banks and then transfers up to $250,000 into each account.  Continuing the above example, Bank Co. establishes a savings account at three other banks – 1st Bank Co., 2nd Bank Co. and 3rd Bank Co.  Bank Co. then transfers $250,000 to each bank.  Farmer now has fully protected accounts at four different banks and his entire $1,000,000 is shielded with FDIC protection.  Bank Co. took care of setting up the three additional accounts and transferring the funds.

Open Different Types of Eligible Accounts.  FDIC will cover different types of eligible accounts at the same bank.  So, multiple type accounts at the same bank can insure more than $250,000.  In this scenario, Farmer can change his individual account to a joint account by adding his spouse ($500,000 coverage), transfer $250,000 to an account held by his farm corporation and transfer $250,000 to an account owned by his trust.  By adding owners and establishing different types of eligible accounts, Farmer’s entire $1,000,000 can be covered by FDIC and remain at Bank Co.

Open Accounts at Multiple Banks.  This strategy is similar to using a Bank Network except that the account holder establishes the accounts.  The account holder may prefer to personally open accounts at multiple banks rather than allowing his bank to do so.  With this strategy,  Farmer opens savings accounts at 1st Bank Co, 2nd Bank Co. and 3rd Bank Co. and transfers $250,000 to each new account.  Now, Farmer’s entire $1,000,000 is covered by FDIC but at four different banks. 



Producers holding funds in accounts not eligible for FDIC coverage or holding funds in excess of FDIC limits should consider implementing strategies to cover any unprotected money.  As the above examples illustrate, it is relatively easy to cause large cash reserves to be entirely insured by FDIC.  The producer’s banker or financial advisor should be consulted to determine the strategy that will work best to protect the maximum amount of funds. 


1 These investments are backed by the full faith and credit of the U.S. government.



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Tags: FDIC
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