It's damned easy for a small business to be acting responsibly while having balances that are well over $100k in their checking accounts. I'm one of the people who had some uninsured deposits at NetBank. I had a small business money market account that I used just for cash reserves. (Example: when you write a check for a retirement fund contribution, you need an account to write it against.) Getting caught with over $100k was just bad timing for me, as I usually don't need that much cash and up until two weeks ago I had always been under the limit. I knew that NetBank was in trouble when EverBank pulled out of the deal, so I had decided to move my account to another bank. About 10 days before the NetBank failure, I wrote a large check against the account and sent it to a new bank along with an application to open an account there.
Meanwhile, I received a fairly large payment from a customer... What I should have done is just held on to this check until the new account was ready. But I thought that the big check I had written to fund the new account would post soon, keeping me under the limit even with the new deposit. So I deposited the customer's check to the doomed NetBank account.
Well, NetBank received the deposit and it posted to my account, while in the meantime the new bank was slow to process my application and didn't cash the check. Ironically, the new bank phoned me on Sep 27 to ask a question or two and then said they would be opening the account right away. As you can guess, they didn't post the check in time and at the end of the day my account was still over the $100k limit. Oops, lesson learned.
Thinking back, there are other occasions in my life where I have briefly had more than $100k in a single account. For example, when you sell a house it is common practice to have the proceeds wired to your bank account. Then you might keep them there until the next house you are buying closes escrow (usually in a few weeks) or maybe move them to a longer term investment account (say within a few days). During this window you are vulnerable to a bank failure. Let's say that on average you buy or sell a house once every ten years and keep the money in a bank account for just 7 days. That means that about 0.2% of the time you will have A LOT of money in your account. Looking at it from the bank's perspective, about 0.2% of their customers will be going through a life event like this on any given day. I read in the news accounts that ING Direct acquired 110,000 new customers and that 1,500 customers had accounts with some uninsured funds... that's more than 0.2% but still doesn't surprise me.
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Meanwhile, I received a fairly large payment from a customer... What I should have done is just held on to this check until the new account was ready. But I thought that the big check I had written to fund the new account would post soon, keeping me under the limit even with the new deposit. So I deposited the customer's check to the doomed NetBank account.
Well, NetBank received the deposit and it posted to my account, while in the meantime the new bank was slow to process my application and didn't cash the check. Ironically, the new bank phoned me on Sep 27 to ask a question or two and then said they would be opening the account right away. As you can guess, they didn't post the check in time and at the end of the day my account was still over the $100k limit. Oops, lesson learned.
Thinking back, there are other occasions in my life where I have briefly had more than $100k in a single account. For example, when you sell a house it is common practice to have the proceeds wired to your bank account. Then you might keep them there until the next house you are buying closes escrow (usually in a few weeks) or maybe move them to a longer term investment account (say within a few days). During this window you are vulnerable to a bank failure. Let's say that on average you buy or sell a house once every ten years and keep the money in a bank account for just 7 days. That means that about 0.2% of the time you will have A LOT of money in your account. Looking at it from the bank's perspective, about 0.2% of their customers will be going through a life event like this on any given day. I read in the news accounts that ING Direct acquired 110,000 new customers and that 1,500 customers had accounts with some uninsured funds... that's more than 0.2% but still doesn't surprise me.