Reciprocal Deposits

Reciprocal Deposits

Reciprocal deposits are a way for community banks to keep large customer deposits while making sure those deposits are fully covered by FDIC insurance. Here’s how it works:

When a customer puts a large amount of money into a local bank, that amount may go over the FDIC insurance limit ($250,000 per depositor, per bank). To protect the full amount, the bank can use a reciprocal deposit network. Through this system, the bank places the excess funds into other banks in the network. In return, those banks place an equal amount of deposits back into the original bank. The customer’s money is now spread out across multiple banks, but from their point of view, it looks like one safe, insured deposit.

For example, let’s say a small business wants to deposit $1 million at a local bank. The bank uses a reciprocal deposit program to divide that $1 million into smaller amounts and places them in partner banks. Each portion is under the FDIC limit, so the entire $1 million is insured. The customer still works with just their local bank.

This is different from brokered deposits, where third parties place money into banks on behalf of investors. With reciprocal deposits, the customer deals directly with their own bank.

Reciprocal deposits help community banks stay competitive by keeping large deposits in their local area while giving peace of mind to customers through full FDIC coverage.

Visit GLOBAL ABAS for more insights.

Disclaimer: This post is for informational purposes only and does not constitute financial, legal, or investment advice. Please consult a qualified professional for guidance tailored to your situation.

For personalized support, contact GLOBAL ABAS Consulting, LLC with your specific questions or concerns.

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