Protecting Your Funding: FDIC Insurance and Beyond

Dec 14, 2022


When you’re building your business, securing a new round of funding marks a huge milestone. But as a founder, you know what really matters is what happens next. How you handle that money shapes your business. It can literally make or break you. 

That means you’re probably fairly risk-averse with money you get from rounds of funding. In fact, you most likely want to take every step that you can to protect that money. 

As that sum grows, that gets more challenging. While the Federal Deposit Insurance Corporation (FDIC) insures deposits up to a certain amount, it’s very common for startups to exceed that limit. 

To help you protect the funding you get to ensure it’s available when your startup needs it, let’s explore your options. 

Take advantage of FDIC insurance

First, it does make sense to take advantage of FDIC coverage. This insurance automatically applies to deposits up to $250,000 at any of the banks the FDIC insures. 

This coverage was developed during the Great Depression to restore trust in American banking institutions. It essentially means that if something happens and the bank loses your money or folds, the FDIC coverage will pay out — up to $250,000.

But if you’re securing rounds of funding worth more than that, you might want to explore other options to make sure your money is safe. You want to make sure you didn’t spend all that time wooing investors and calculating burn rate for nothing, after all. 

Open accounts at different institutions or in different categories

One option here is to simply open multiple accounts. The $250,000 coverage limit for FDIC insurance applies per bank and per ownership category.

That means that if you receive a round of funding worth a half million, you could potentially open up two accounts at two different FDIC-insured banks. By splitting that funding between the two banks, you get the full amount covered. 

Alternatively, you could open accounts under different ownership categories at the same bank. Because FDIC insurance applies per category, having $250,000 in a business account and $250,000 in an employee benefit plan account would mean the full amount is covered, as well. Some banks may offer FDIC sweep options that can spread the aggregate amount of funds across multiple subsidiary banks, which can save a founder time having to worry about moving money around.   

Of course, this gets harder as your funding rounds grow. If you’re getting multiple millions of dollars, you could potentially need to leverage several institutions to get everything insured. And because that can make for quite an accounting and bookkeeping headache, many startup founders explore alternative ways to best manage the cash they get through rounds of funding. 

Use a bank network

To address this specific issue, bank networks exist. These essentially streamline the process by breaking large sums into deposits at or under the $250,000 limit at banks within the network. Usually, they offer this service for a fee.

Some of the players in this game include:

As you’re exploring bank networks, make sure you understand how they work. Some will put your money into certificates of deposit (CDs) or money market accounts, potentially collecting some of the earnings themselves. 

Explore a bond ladder

Splitting your money into CDs or bonds from highly rated, trusted issuers (like the U.S. Department of the Treasury) can protect your money and help you earn a little more on it with minimal risk. 

The trick, of course, is to balance this strategy with the liquidity your startup will need. For that, many financial professionals recommend what’s called a bond ladder. 

With this option, you buy CDs or bonds designed to mature at a certain time. Let’s say you have a CD that matures in one year, one that matures in two years, and a sizable one that expires at the three-year mark when you expect to be growing at a faster rate. This option would ensure that the money becomes liquid as your business needs it to grow. And, in the meantime, because CDs get FDIC insurance, every dollar is insured (as long as each CD is less than $250,000). 

Similarly, you can explore this option with bonds. These don’t get FDIC coverage, though, so it’s best to choose ones from a trusted organization. U.S. Treasury bonds, for example, get backed by “the full faith and credit of the United States government.” Some bond issuers also buy insurance on their bonds, which can give you an added layer of protection. 

Consider a brokerage account

Some institutions will insure money that’s invested above and beyond FDIC insurance limits. To tap into that, though, you would need to be willing to invest the funding you just raised. Some founders like the upside to earn more on what they’ve already gathered up, but others shudder at the thought of losing even a small portion of it. 

Here, risk mitigation is key. You might look into a money market fund since these portfolios generally consist of components that financial advisors consider low-risk. Be advised, though, that they don’t get FDIC insurance. Money market accounts do get FDIC coverage but can be higher-risk.  

Ultimately, the brokerage option isn’t right for every startup. In some cases, it does give you another channel to explore to add a layer of protection to your money. Just be sure you’re calculating the risk for losses carefully.  


A lot goes into making the right decisions once you get a round of funding. It’s important to have financial experts in your corner who you can trust. If your startup isn’t at a point where it makes sense to hire an internal CFO, you may want to consider a fractional CFO to help guide important decisions like these. With CFO advisory services, you get an expert invested in helping your startup succeed.

If you have any questions about your options for protecting your funding and setting your startup on the right path to scale, our team at ShayCPA is here. Beyond offering CFO advisory services, we have extensive experience helping startups with our accounting expertise. We know how crucial cash flow is — and we know that means protecting every dollar you raise. To talk with us, get in touch today.