Maximizing your business savings is a smart move for small businesses with cash on hand, but interest rates on business savings accounts range from low to competitive depending on the bank. That being said, the best business certificates of deposit (CDs) allow you to lock in a competitive fixed interest rate for a set period of time. They often have APYs similar to the best consumer CDs.
However, business CD rates can vary widely, as can business CD terms. Different banks may have significantly different minimum deposit requirements and other terms for products. After all, this is why you should compare the best business CDs side by side before investing.
These are some of the highest rates for business CDs available as of February 2024.
What is a business CD?
Business CDs function similarly to consumer CDs. The best business CDs offer small business owners the opportunity to “lock in” their savings at a fixed interest rate for a set period of time, called a “term.” The business owner receives a set interest rate for the term of the CD. Once the CD matures, the business owner can renew the investment or convert the funds into cash.
The term of a business CD varies depending on the institution offering it, but you can typically find terms ranging from 31 days to 10 years. Minimum deposit requirements also vary by bank, but are typically between $500 and $5,000.
As with consumer CDs, the best business CDs typically impose penalties on business owners if they need to cash out all or part of their investment before the end of the CD term. be careful. These penalties may vary by institution.
As an example, Academy Bank imposes the following penalties for early withdrawals from business CDs:
- 7-91 days: 60 days of interest loss
- 92 to 182 days: 182 days of interest loss
- 183 days to 60 months: 1 year of interest loss
- 60 months: 2 years of lost interest.
Why choose a business CD to save money?
Business CDs offer businesses the opportunity to earn more interest on their savings when they don't need to access the funds for months or years. That's because business CD rates can be significantly higher than the rates typically offered by business checking and savings accounts.
Not only can business CD rates be higher than business savings or money market accounts, but business CD rates are also fixed. This means that the business owner receives a guaranteed interest rate on his savings that will remain the same for the term of his CD.
Also note that business CDs are a low-risk investment option. In addition to guaranteed interest rates, these accounts come with traditional FDIC insurance up to $250,000 per depositor, per bank, and per account type.
Understand various business CD terms
Understanding the financial terminology that applies to business CDs can help you figure out your next move. Before you save to CD for your business, understand the following terms:
- Annual Yield (APY): APY is the amount of interest a CD or other savings product earns after taking compound interest into account.
- Compound interest: This is interest calculated based on both the principal balance and the interest earned in the account.
- Early withdrawal penalty: This penalty is imposed on CDs when the depositor needs to withdraw all or part of the invested funds before the CD reaches maturity.
- Grace: A grace period is a fixed period of time (usually up to two weeks) after the CD period ends. During this period, the bailor can choose to cash out her CD or he can make changes to the CD before it is automatically rolled into a new CD with the same terms as before.
- Maturity: The maturity date is the date on which the term of the CD ends.
- Period length: Term length is how long the CD provides a fixed interest rate until it matures. Most business CDs have terms ranging from 31 months to 10 years, but options vary by institution.
Points to note when choosing a business CD
There are some important factors to keep in mind before choosing a CD for your business. Consider the following:
- access: Some banks allow you to open a business CD online, while others require you to visit a bank branch in person. When comparing the best business CDs, check which banks have branches in your area and which offer only online access.
- Fee: Take your time and compare the best business CDs based on the rates they offer for different time periods. Please note that prices can vary widely. Ideally, you would choose CD terms with very competitive interest rates compared to other banks.
- Minimum deposit requirement: Minimum deposit requirements for business CDs range from $500 to more than $5,000, which can be important if you're planning on investing a relatively small amount to begin with.
- Time to invest: Be sure to choose a CD term that fits your financial goals. If you need the money within a year, it could be a shorter term business CD. Also, if you're saving your business money for long-term goals, it could be a longer term CD.
- Business CD types: Finally, keep in mind that business CDs come in many different formats. In addition to standard fixed-amount CDs for businesses, some banks offer step-up CDs and trade-up CDs for businesses. These interest rates may increase as market conditions change.
Advantages and disadvantages of business CDs
If your business has extra money that it won't need for a while, a business CD can help you earn more interest than keeping that money in a business checking account. While you can open a business savings account or business money market account at any time to increase your earnings, business CDs allow you to “lock in” a fixed interest rate for a set period of time, from one month up to 12 months. can. It can take months or even 10 years.
Business CDs are easy to open at a branch or online, and there are often no fees other than early withdrawal penalties.
A potential downside to business CDs is that you have to commit to a term, making your money less available than if it were in a savings or money market account. Some banks that offer business CDs have higher minimum deposit requirements than others, so be careful. Finally, early withdrawal penalties on business CDs can eat into your savings if you need the money sooner than planned.
Navigate the process of opening a business CD
Depending on your institution, you can open a business CD online or at a local bank branch. In either case, you will typically need to:
- legal US resident
- 18+
- Legally permitted to open accounts on behalf of companies
- US-based business owners
Typically, you can open a business CD if your business is one of the following:
- Co., Ltd.
- General partnership
- Limited liability company (LLC)
- joint stock company
- professional association
- specialized corporation
- Sole proprietorship
- Corporation
To open the Business CD, you must provide the following documents:
- Business name and address
- Employer Identification Number (EIN)
- Date the business was established
- Country and state of legal establishment
- Country and state of principal operations
- Business owner's social security number (SSN)
- Business owner's date of birth
Frequently asked questions (FAQ)
Business Money Market Accounts offer competitive variable interest rates and ongoing access to your money with no fees. In fact, with a business money market account, you get debit card and check transfer privileges, and because you're not locked into a fixed interest rate, there's no penalty for accessing your money.
Business money market accounts also tend to have low minimum deposit requirements, making it easier to start saving. x`
Before making a CD investment for your business, you should compare the best business CDs based on interest rates, terms, and minimum deposit requirements. Ultimately, you need to find a CD with the best possible rate for your investment term at a bank that has a minimum deposit requirement that you can meet.
You can take early withdrawals from your business CD by contacting your bank and requesting access to your funds. Note that if you access your CD funds before your account reaches maturity, early withdrawal penalties will apply.
