The FDIC was officially established by President Franklin D. Roosevelt as part of the Banking Act of 1933, often known as the Glass-Steagall Act, in response to the massive bank failures of the Great Depression. As part of this effort, deposit insurance was offered at covered banks, backed by the full faith and credit of the U.S. government, covering deposits up to $2,500 per depositor when the first national system of deposit insurance began in 1934. Deposit insurance was designed to restore confidence in the banking system and ensure that depositors felt safe leaving their money in the bank rather than under a mattress.
Given our history in the US with bank failure and the fact that several high-profile bank failures have occurred in the last decade, we were surprised to find in the 2025 CFO Cash Confidence Survey that over 86% of businesses held more than $250,000 in a single bank, putting them at significant risk in the event of bank failure.
But how can businesses access deposit insurance when they have over $250,000 of cash to protect? By accessing deposit insurance via pass-through coverage.
What Is Pass-Through Coverage?
Pass-through deposit insurance refers to arrangements through which deposit accounts are established by a third party for the benefit of one or more other parties, known as principals (the depositor). This means that a business can work with a third-party deposit management partner to access accounts at multiple covered institutions, helping ensure its full balance remains protected.
Accounts with pass-through deposit insurance coverage are not insured as a separate ownership category, meaning, if a business has a deposit account at ABC Bank, and then works with a third-party deposit management firm to open another account at ABC Bank, both of those accounts are owned by the same principal and insured only up to $250,000.
How Does Pass-Through Coverage Work?
Pass-through coverage works based on proper account titling and excellent recordkeeping. The FDIC stipulates that several requirements must be met for a depositor to access pass-through deposit insurance. Those are:
- Funds must be owned by the depositor and not the third party who set up the account. This is determined through the agreement between the third party who established the account, and the depositor.
- Appropriate account records and account titling, with it being necessary to note that the account is in the name of the third party, but it is for the benefit of its customers, and all customers must be named.
- Records must indicate the identities of the depositors as well as their ownership interests in the deposit.
These rules are for the protection of the depositor, and to uphold strong fiduciary standards for third parties involved in deposit management.
How Can I Access Deposit Insurance Over $250,000?
It’s a lot easier than you might imagine to access deposit insurance over the standard limit at a single institution. You just need to find the right partner to assess your needs and make an appropriate recommendation. You have two standard options:
- Talk to your bank about insuring your complete deposit. They will likely recommend a sweep account product to you, but the rate may not be very competitive.
- Find an experienced deposit management partner to review your current cash position, rate, and liquidity needs and make a recommendation for your business.
For businesses with meaningful cash balances, the question is not just whether deposits are insured, but whether the full cash position is protected in a way that supports liquidity, yield, and operational needs. Pass-through deposit insurance can be a practical path to broader protection when it is supported by the right structure, documentation, and partner oversight.