Imagine if you could earn interest on your small business’s working capital while still keeping that money available for your company’s day-to-day expenses. Today, leading business checking accounts do pay interest on deposits, allowing you to get more out of your cash on hand while keeping it, well on hand.
In this blog, we look at how business checking with interest accounts works, the benefits and potential drawbacks of doing so, and how this stacks up against other interest-earning options like money market accounts and certificates. Read on to learn how you and your company can earn the interest you deserve.
BUSINESS CHECKING ACCOUNTS AND INTEREST
Can business checking accounts earn interest? Contrary to popular opinion, business checking accounts can pay interest on deposits, allowing you to earn dividends on your cash and reducing the need to juggle your funds between accounts and limited-access options like savings accounts or share certificates.
As with personal checking accounts, the ability to earn interest on your deposits in a business checking account may come with some requirements, such as maintaining a minimum balance to attract yields or exceeding a certain transaction threshold.
And, while traditional banks typically offer little to no interest on business accounts, you’ll find local credit unions are more committed to businesses in their communities, often offering more flexible terms and dividends than big banks.
PROS AND CONS OF INTEREST-EARNING CHECKING
Wondering if an interest-earning business checking account is worth it? Keep reading to discover the advantages and potential disadvantages of this type of bank account.
ADVANTAGES
Opening an interest-bearing business checking account for your company may offer some or all of the following advantages:
- Guaranteed interest/dividends: Add another stream of passive income for your business, making your money work for you.
- Federally insured: Unlike many other investment options, bank and credit union deposits are protected up to $250,000 per account, including any interest earned.
- Compounding interest: Earn the benefit of monthly compounding interest, with returns increasing over time.
- Easy access to funds: Keep money handy for managing your daily business operations while still earning interest.
- No minimum balance requirements: The best business checking accounts require no minimum balance, making them accessible for all businesses.
POTENTIAL DISADVANTAGES
At the same time, it’s important to be aware of the potential drawbacks of these types of business checking accounts:
- Account requirements: You may need to maintain a minimum balance or meet transaction limits to earn interest.
- Potential fees: Failing to meet account requirements might attract extra fees, which can quickly outweigh your earnings or dividends.
- Variable interest rates: Interest rates change based on market conditions. If interest rates drop, you will likely earn less on your deposits.
That said, interest-bearing business checking accounts continue to offer a compelling mix of accessibility and risk-free earning potential for your company’s ready cash.
CHECKING VS. OTHER INTEREST-EARNING OPTIONS
How do interest-paying business checking accounts compare with other popular ways of investing business funds? Let’s see how interest-paying business accounts stack up against business money market accounts as well as share certificates or certificates of deposit (CDs).
BUSINESS MONEY MARKET ACCOUNTS
Business money market accounts typically include:
- Higher interest rates than checking accounts which allow your money to work harder.
- Limited transactions per month, making them less flexible for daily operations.
- Higher minimum balance to earn dividends or avoid fees than checking accounts.
SHARE CERTIFICATES OR CDS
Share certificates or Certificates of Deposit (CDs) typically include:
- Fixed interest rates that provide a guaranteed interest rate over a specified term.
- Inability to access your money for the term without incurring penalties.
- Higher returns than checking and money market accounts.
The following table provides a direct comparison of the features of interest-bearing checking accounts vs. money market accounts and share certificates.
|
Interest-Bearing Business Checking |
Business Money Market |
Share Certificate |
|
|
Interest Rates |
Moderate |
Higher |
Highest |
|
Accessibility |
High |
Moderate |
Low |
|
Minimum Balance |
Low/None |
Higher |
Variable |
|
Fees |
Low |
Moderate |
Low |
|
Compounding Frequency |
Monthly/quarterly |
Monthly/quarterly |
Fixed |
|
Penalty for Early Withdrawal |
No |
No |
Yes |
It’s clear that interest-bearing checking accounts offer the best balance of accessibility and earning potential. While business money market accounts and certificates might provide higher interest rates, they come with restrictions that might not suit every business’s needs.
CLIMB HIGHER WITH SMARTER BUSINESS BANKING
Wasatch Peaks Credit Union has been helping local businesses in Davis, Weber, and Morgan counties reach their goals for decades. We offer a range of business checking and savings accounts designed to meet your company’s specific needs, including our Pinnacle Business Checking Account, which pays monthly dividends while keeping your cash reserves accessible.
Our Pinnacle Business Checking Account also offers Wasatch Peaks members:
- No minimum balance
- A full range of payment processing and merchant services
- Our Business Discount Package (included in Benefits Plus)
- Free cashiers checks
- Discounted rates and fees when applying for business loans.
Contact us today or stop in at one of our branches to discuss how our Pinnacle dividend-paying business checking account could work for your business, or click below to learn more.
