4 High-Yield Business Savings Accounts and How to Choose
For small business owners, a savings account is more than just a rainy day fund. It’s a golden opportunity to grow your capital by hundreds or thousands of dollars each year — especially if you choose a high-yield business savings account.
Generally, high-yield savings accounts offer higher interest rates than the average savings account, which has a .06% interest rate (as of July 2020). These average rates don’t even keep pace with annual inflation, which is usually 2%.
When your interest rate hovers below the inflation rate, your savings lose buying power each year. For instance, if you save $1,000 at a 1% interest rate, you’ll have $1,010 after a year. But if inflation is 2%, you’d need $1,020 to buy something that cost $1,000 a year ago. High-yield accounts reduce the negative impact of inflation on your unused funds.
Most financial institutions take their cues from the federal funds rate. Recently, the Federal Reserve slashed rates in response to the COVID-19 economic downturn, so savings account interest rates may be lower than usual.
In these conditions, you’ll want to look for the strongest yields available to boost your bottom line. Luckily, there are many high-yield savings tools to choose from. We’ll cover four interest-bearing options you can use to put your money to work, as well as key features to look for.
High-yield business savings accounts: 4 solid options
Traditional banks, online-only banks, credit unions, and non-bank financial institutions all offer excellent savings tools — from the familiar business bank accounts to more strict certificates of deposit. Here’s an overview of the products you can use to stash your extra cash:
High-yield business savings account
A high-yield savings account is a type of deposit account that earns interest and is typically federally insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). That means that even if your bank or credit union fails, the government guarantees that your funds are protected and available.
The best high-yield accounts can earn a 1-2% annual percentage yield (APY). At a 1.5% APY, an account balance of $10,000 would earn roughly $150 each year. That might not sound particularly lucrative, but your yield is much higher than an account with a .06% APY, which would net you $6 after one year. As you can see, a couple percentage points’ difference has a big impact on your earnings.
The other savings products we’ll cover may offer higher rates, but funds in a savings account are easiest to access. If you expect you’ll need to draw on these funds to cover an expense or invest in an opportunity, this is a good choice.
Certificate of deposit (CD)
A certificate of deposit (CD) is a high-yield savings product that you can purchase from banks and credit unions. CDs offer fixed rates — usually higher than the variable rates of traditional savings accounts — but there’s a trade-off.
In exchange for a better, reliable APY, you’ll agree not to withdraw your funds for a set period of time. CD terms can range from three months to over 10 years, depending on the financial institution. While your funds aren’t very liquid, this also means you can save an amount you’re comfortable with and be guaranteed a certain yield.
Similar to savings accounts, CDs are insured by the FDIC or, if you open one with a credit union, by the National Credit Union Administration (NCUA). As your CD nears maturity, you may even be able to secure a higher interest rate.
A CD isn’t the right choice for every small business, but if you have fairly healthy cash flow and funds to spare, it’s an effective tool to grow your capital over time.
Business money market account (MMA)
A money market account (MMA) — not to be confused with a money market fund — is another interest-bearing savings option. MMAs are savings accounts that come with the advantage of some business checking account features. In addition to high interest rates and FDIC or NCUA insurance, they include debit cards, ATM cards, check writing capabilities, and ATM withdrawals.
Generally, MMAs have variable interest rates, so your earnings aren’t as reliable as funds in a CD. But they’re also an appealing choice because of their favorable APYs and money management features.
Although MMAs act like a convenient, hybrid business account, you’ll still need a business checking account. MMAs are still beholden to the six-per-month withdrawal limit that’s usually in place. (In April 2020, the Federal Reserve suspended this rule, part of Regulation D, due to coronavirus-related financial events. This is expected to return to normal once the economy improves.)
Cash management account (CMA)
A cash management account (CMA) lets businesses maximize their money without juggling multiple accounts or limiting access to funds. CMAs aren’t bank accounts. Instead, they combine the features of business savings accounts, checking accounts, and investment accounts to deliver all-in-one financial management.
High-yield CMAs like Brex Cash improve upon the old, frustrating banking system and typical savings accounts in a number of ways. Account holders get access to industry-leading APYs without any personal risk, minimum balance fees, overdraft fees, or wire transfer fees. And because it’s a single account, all of your funds earn interest.
Business CMAs are usually insured by the Securities Investor Protection Corporation (SIPC). SIPC insurance protects up to $500,000 in securities, of which $250,000 can be cash. So, similar to FDIC insurance, a portion of your savings is always safe.
Features of the best high-yield savings accounts
We’ve evaluated the high-yield business savings accounts, CDs, MMAs, and CMAs from leading financial institutions, and the best options all include the qualities we’ve compiled below. Here are the features and services to look for as you’re doing your comparison shopping.
High interest rates
Savings account rates rise and fall with the federal funds rate, but in typical economic conditions, high-yield accounts offer APYs of 1-2% and higher.
Generally, an online-only financial institution guarantees the highest APY because it doesn’t have the same overhead costs as traditional banks. If you’re comfortable with online and phone support and don’t need an extensive ATM network, this is a simple way to get the best interest rates.
Realistic opening requirements
Depending on the savings product, you may have to make a minimum opening deposit. The best business savings accounts have a $1 minimum deposit, or waive the minimum entirely, while others require $10,000 or $25,000 to open the account.
Going forward, you may have to meet a certain minimum balance requirement, but many financial institutions don’t require this. Find out if you’re allowed to make automatic transfers from your business checking account, whether it’s with the same bank or not, so you can keep up with any requirements.
No or low fees
No matter which financial institution you choose, savings accounts have a six-withdrawal limit per statement cycle. After that, you may pay a withdrawal fee. Otherwise, account providers impose fees as they please.
Among the top accounts, most either had no recurring monthly fees, account fees, or transaction fees, or waived them if you maintained a certain account balance. If your account provider does have fees — “monthly service fees” or “monthly maintenance fees” are common — they should be transparent about the cost and how you can avoid them.
Online business banking services
When it comes to savings accounts, MMAs, and CMAs, online banking isn’t the exception, it’s the norm. The best high-yield accounts allow you to manage your account, transfer money, or make withdrawals day or night in the office or on a mobile device.
In addition to a user-friendly desktop website, look for a convenient mobile banking app. Your online account should also have time-saving native integrations. By connecting your other business tools — like accounting software and expense management software — you’ll avoid manual data-entry errors.
Saving up for the right account
Opening a high-yield business savings account puts your money to work without any extra effort on your part. For the best earnings, look for savings products that have consistently high APYs and few service charges, if any.
Long-term options like CDs have great earning potential, but it comes at the cost of liquidity. If you choose a more flexible, daily-use account, choose one with secure online banking services, a fast mobile app, and convenient integrations without monthly fees.
Finally, be willing to go beyond large traditional banks and credit unions to get competitive rates. Online-only financial institutions offer some of the best APYs on the market.
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