What type of business savings account is right for you?
Establishing a savings account as a business owner is a key part of navigating the ups and downs of running a business. Having money set aside in savings can provide a financial cushion during an uncertain or turbulent economic environment or for emergencies. Maintaining a savings account can also help you realize goals like growing the business or making significant purchases.
A standard business savings account is one of the most common options, but there are many other types of savings vehicles available to businesses as well, including high-yield savings, money market accounts and certificates of deposit. Understanding the features of each of these choices can help you select the best account to support your businesses’ goals and needs.
Types of business savings accounts
Beyond standard savings accounts, businesses can choose from high-yield accounts, money market accounts and CDs.
Standard business savings accounts
Think of a standard business savings account as your foundation for basic cash management. These accounts work well for startups and small businesses looking to separate and protect their funds while earning modest interest. They typically offer:
- Low minimum balance requirements that make them accessible for new businesses, often starting at $100 to $500 to open an account and avoid monthly fees.
- Basic interest rates that help your money grow slowly but steadily, offering better returns than checking accounts while maintaining easy access to your funds.
- Simple transfer capabilities between your business checking and savings accounts, allowing you to move money quickly when needed for business operations.
Pros
- Earns interest
- Funds are readily accessible
- Insured by FDIC up to $250,000 per depositor
- Low minimum balance requirements
Cons
- Lower interest than other types of savings
- May have monthly fees
- Minimum balance requirements
High-yield business savings accounts
High-yield accounts help your money work harder through better interest rates, though they may require larger balances. These accounts usually offer:
- Significantly higher interest rates than standard savings accounts, helping your reserves grow faster.
- Higher minimum balance requirements to access the best rates, making them better suited for established businesses.
- Limited monthly transactions to encourage longer-term savings, usually allowing a set number of withdrawals per month before incurring fees.
Pros
- Funds more accessible than CDs
- Higher interest rates than standard savings
- Insured by FDIC up to $250,000 per depositor
Cons
- Limited monthly transactions
- May incur fees
- Steeper minimum balance requirements
Money market accounts
A money market account (MMA) blends the benefits of checking and savings accounts, often matching or exceeding high-yield savings rates. These accounts work best for businesses that want:
- Convenient access to funds through check-writing and debit card features, allowing you to handle unexpected expenses without transferring money between accounts.
- Tiered interest rates that reward higher balances, often offering better returns as your account balance grows above certain thresholds.
- Flexible access to your money while still earning competitive returns, making them ideal for businesses that need both liquidity and earning potential.
Pros
- Check writing and debit card access
- Flexible access to funds
- Higher interest through tiered rates
Cons
- May have monthly fees
- Minimum balance requirements to earn higher interest
- Withdrawal limits
Certificates of deposit
Certificates of deposit (CDs) are time-bound savings accounts that lock in your funds for a specified period in exchange for a guaranteed interest rate. Some banks also offer no-penalty CDs that allow full withdrawals without charges. CDs are ideal if your business:
- Has surplus cash that won’t be needed for several months or years, allowing you to earn higher guaranteed returns on your excess funds.
- Wants to lock in predictable returns regardless of market fluctuations, helping you plan future expenses with more certainty.
- Can commit to keeping funds untouched for the full term, typically ranging from three months to five years, in exchange for higher interest rates.
Pros
- Higher interest rates than standard savings
- Low risk
- Predictable returns
Cons
- Funds are locked in
- Lower interest than traditional investments
- Penalty for early withdrawal
Specialized business savings accounts
Some banks create accounts for specific business types, like nonprofits or startups. These specialized accounts might offer reduced fees, better rates or added benefits like free business consulting. Look for these if your business has unique financial needs or qualifies for industry-specific banking perks.
How to choose the best type of savings account for your business
Selecting the best business savings account requires balancing your company’s financial goals, cash flow patterns and operational needs. Here are some steps to guide your decision:
- Define your goals: Know exactly why you’re opening the account. Are you building an emergency fund? Saving for a major purchase? Defining your primary objectives helps narrow down your options.
- Evaluate your cash flow: Assess how much money you can regularly set aside and how often you might need to access it. If your cash flow fluctuates, opt for an account with more withdrawal flexibility.
- Compare account types: Match your needs to specific account features. For example, if you’re saving for a long-term goal, a CD might offer better rates, while a money market account may offer the flexibility you need for occasional withdrawals.
- Research banks: Look beyond just high interest rates. Consider factors like fees, online and mobile banking capabilities, branch and ATM access if needed, customer service quality and integration with your company’s software.
- Understand all terms: Review the fine print about fees, balance requirements and withdrawal limits before opening an account.
How to make the most of your business savings account
Choosing the right type of savings account for your business is key to making the most of the account and the features it offers.
Evaluating your businesses’ cash flow and identifying your goals for the account are important first steps toward selecting the best account. Choosing the right account may also depend on where your business is in the start-up or growth journey. If your business has not yet set aside three to six months of operating expenses to cover unexpected downturns, for instance, a basic business savings account can be a good first step.
If your business is well-established and already has emergency savings or reserves and is now working toward a significant purchase or some other goal, then an account offering more aggressive interest may be the next step.
Understanding the benefits of each type of account and how they align with your goals and the current phase of your business’s lifecycle can help identify the best savings option.
The bottom line
A business savings account plays a crucial role in sound financial management, helping ensure you have funds ready for both opportunities and challenges. The right account — whether it’s a standard savings account, high-yield option, money market account or CD — depends on your specific business needs and goals.
Take time to evaluate your options, comparing features and rates from reputable banks. Understanding and selecting the right account will help you manage your business funds more effectively.
