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 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 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 you access to expanded FDIC insurance coverage for your deposits, through one banking relationship.

An example of this would be a business depositing $1 million into a single business checking account at an FDIC insured bank. The FDIC only insures $250,000 of the business’ deposits at that bank. However, if their bank can provide them access to a deposit sweep network, and the depositor authorized the bank to place their deposits throughout the sweep network, the remaining $750,000 could be placed in deposit accounts at banks in the sweep network and the funds may be eligible for FDIC insurance at those network banks.

There are several benefits to using a sweep network:

Increased FDIC coverage

This is the most obvious benefit. Spreading your money across multiple network banks can make your money eligible for FDIC insurance at those banks. Many small- to medium-sized businesses have more than $250,000 in their accounts. Protecting as much of it as possible is just good business.

Extra peace of mind

Increasing access to FDIC insurance by placing your deposits throughout a sweep network 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.

Unaltered banking experience

A key benefit to using a sweep network is that your banking experience doesn’t change. A depositor can work directly with just one institution to place its funds while accessing FDIC insurance through multiple banks.

The FDIC insurance limit per depositor per insurable category at a single FDIC-insured bank is $250,000. Multiply that by the number of banks your funds could be distributed to. Many sweep networks offer $3 million to $5 million in increased FDIC coverage, while some larger networks with hundreds or thousands of network banks can offer depositors access to $100 million or more in increased FDIC insurance.

Sweep networks are critically important to businesses whose deposits eclipse the $250,000 mark.