A simple banking strategy for startups

The recent fallout of Sillicon Valley Bank prompted startup founders to rethink their banking strategy.

I did some research on this exact topic last year. An important fact that I learned is FDIC insurance is per bank and per account type. So $250,000 for a combination of checking and savings account at the same bank. If you have one million dollars, you can spread it across four banks. Brex and Mercury - I called them nicer front-end of banks - work with multiple banks to spread deposits across them to achieve up to one million dollars FDIC insured amount. Still, if you have multi-million dollars, creating and managing a dozen bank accounts is a big hassle - this strategy does not scale with funding. Aside from bank credit risk, there’s also the fact that in general, operating expenses are a small fraction of the funds, the rest of the money is subject to inflation risk, especially when we’re in a high inflation environment. A simple and effective strategy is to put operating expenses in FDIC insured bank accounts, and invest the rest of the money in short-term US treasury bills directly from Treasury Direct - the US government has a better credit rating than big banks. Considering all of the above, here’s the strategy I took:

1. Create a business checking and a business savings account with Mercury - easily done online.
2. Create a business checking and a business savings account with Bank of America - better credit rating than Mercury’s parter banks, but I had to spend one afternoon going to a branch to open the accounts.
3. Use Mercury for operating expenses and general operations (accept payments, wire transfers etc.). Funds in Mercury should not exceed one million dollars, transfer to Bank of America if that happens.
4. Place the rest of the funds in Bank of America. Move funds between checking and savings account as needed.
5. Create a Treasury Direct account, connect to Bank of America checking account, invest in 4-week bills with scheduled auto-reinvestment. Auto-reinvestment can be paused and resumed as needed.

With this strategy I get the ease of banking from Mercury, lower credit risk from Bank of America, and protection from inflation with short-term treasury bills.