Best CD Rates for Business Accounts
Best CD Rates for Business Account
Certificates of Deposit is one of the most reliable and secure places to put your money. Despite the March 2020 federal cut on rates, individuals and businesses can still earn pretty decently by investing in CDs.
You can invest from a period as short as 3 months and as long as 10 years, or more with some financial institutions. At the end of it all, you’ll be able to save while significantly growing your money.
However, CD accounts are not like the traditional savings accounts that will always allow you to deposit or withdraw at your convenience. In this article, we’ll cover the best CD rates for business accounts, and point you to the industry’s top lenders. Take a look;
Table of Contents
How do CD rates work?
A certificate of deposit is a savings account held in a bank or credit union that enables savers to save and grow their income. They operate the same way as traditional bank accounts. Except that these lack the flexibility of traditional savings accounts.
Those investing in CDs can choose the duration in which their funds will be locked, usually called terms. They range from 3 months to 10 years, or more depending on the financial institution you’re saving with and your relationship with them.
Once a saver chooses a preferred term, they then proceed to deposit their principal – the amount they wish to save. The principal amount is then locked for the entire period of the term.
Savers aren’t allowed to withdraw or top up their principal till the maturity of their chosen term. The funds earn interest throughout the term.
With CDs, returns are guaranteed, and they are usually predetermined at the onset of the term. However, to enjoy all the benefits, a saver must be willing to leave his/her savings untouched till maturity.
Apart from the traditional CDs, financial institutions have also introduced special CDs for further convenience of the savers. Such include add-on CDs which enable savers to top up their original principal to maximize savings.
They also include non-penalty CDs that allow savers to withdraw without paying early withdrawal penalties.
The safety of your funds is also guaranteed when you invest in CDs.
Can I get a CD with a business account?
Yes. CDs are great savings tools that can be used by both individuals and businesses.
Because of the uncertain market, and the desire for financial growth, businesses can choose to invest in CDs instead of letting their funds lie idle. After all, CDs come with competitive rates and higher yields.
Unlike other traditional accounts, for CDs, you won’t need to pay monthly account maintenance fees. This can, therefore, save you some bucks.
A business can go the CDs way when they have long-term financial goals like expansion, starting a new line trade, or purchasing an asset.
CDs also come with fixed rates, mostly slightly above or equal to the national average at the time of depositing funds. Businesses should take advantage of rising market rates. Short-term CDs (3 – 12 months) are often the best for such.
So, the bottom line is – as long as you’re running a legit business, and you have some funds you can leave untouched for some period, you can invest in CDs with your preferred financial institution.
Terms and Risk of CDs
Different financial institutions have different terms for businesses wishing to invest in CDs.
First off, the business should be duly registered and compliant with the authority within its jurisdiction.
It’ll even be easier if the business has an existing bank account where the funds can be deposited upon maturity. And if possible, let it be in the financial institution you’re investing in CDs with.
Different institutions also dictate the minimum deposit you should make to your CD account. The above institutions, for instance, have their minimum deposits ranging from $500 to $2,500.
Having a larger principal will improve your chances of getting higher yields. It is advised that you deposit as much as possible, especially when investing in traditional CDs that don’t allow you to top up your principal amount during the term.
The risks associated with CDs include;
- Inflation – inflation has a direct impact on CD rates, and it can be negative or positive. For instance, a high rate of inflation will outdo CD rates, and render money valueless. This is an even bigger problem when the rate of inflation rises before the maturity of your CD term. A business is more likely to end up with funds of lower value than what was initially invested.
- Limited liquidity – each financial institution has its laid-out terms for CDs. For instance, the basic one that cuts across all institutions offering traditional CDs is that you cannot withdraw your funds before maturity. Going against this will see you part with an early withdrawal fee, usually high for long-term CDs. Hence the business cannot access their funds as they easily would in the case of a traditional savings account.
Before investing in CDs, a business should weigh the terms and risks and determine if the investment makes any financial sense. Doing so will help you avoid the losses associated with mistakes, some of which may be genuine.
Short-Term vs Long-Term CD
For CDs, the rule of the thumb is always – the longer the term, the higher your possible yields. But on the flipside, such longer terms attract the steepest withdrawal penalties. Let’s break this down some more, starting with the basics;
A typical CD saver can choose between short-term (3 – 12 months), mid-term (2 -4 years), and long-term (5+ years) CDs.
What term you choose will depend on your financial goal and how long you are willing to leave your cash untouched.
Long-term CDs have the best rates you can find. However, they require a high level of commitment, hence the high rates. They are often meant for savers with long-term goals and those looking to grow their savings significantly.
Banks and credit unions are the best matches for long-term CDs. They offer such special CDs as step-up CDs that let your rates increase at least twice during the term.
Short-term CDs, on the other hand, are most sought-after due to their flexibility. Since they have a shorter maturity period, you’ll have access to your funds sooner. And, should your funds mature when you don’t have an immediate need for cash, you can just reinvest it.
However, short-term CDs have lower rates compared to their mid and long-term counterparts. But, you can still find better rates with online banks.
Short-term CDs also attract the lowest early-withdrawal penalties since they don’t require a high level of commitment.
But, if penalties are your main concern, then you should consider going for no-penalty CDs. For these, you won’t be charged any penalties should you withdraw your funds before maturity.
Instead of choosing between long-term and short-term CDs you can invest in both and enjoy all their benefits. This is called building a CD ladder. This way, you’ll bridge the gap between short and long-term CDs by spreading your funds through different CD terms.
Pros and Cons
A good savings plan – Instead of letting money sit around idle, you can invest them on Business CDs. Here, you’ll minimize cases of misappropriation of funds while at the same time growing it. The idea of paying penalties will likely motivate you to continue saving.
Lower rates – compared with the money market and bonds, CDs tend to attract lower rates. Short-term CDs attract the lowest rates.
Guaranteed returns – once you’ve invested in CDs, you’re guaranteed returns. And, these are often predetermined at the onset of your term. Regardless of the market conditions, your yields will stay untouched and will be given to you upon maturity of your CDs. You only have to act per your agreement with the financial institution you’re investing with.
Penalties – you’ll part with early-withdrawal fees, usually a couple of months’ interests, for withdrawing your funds before maturity.
Immune to changes in the market rates – CD rates are worked out based on the present market average at the onset of your term. Once calculated, your funds will remain locked to these rates. You, therefore, won’t be affected by any possible market turbulence like its common with shares and the money market. This works to your advantage especially when there is a decline in the market rates.
No flexibility – Funds invested on CDs are locked, at least till the maturity of your term. This is unlike the traditional savings account that lets you have unlimited access to your account. That makes it even harder for you the case of an emergency. You’ll also miss out on a possible rise in market rates.
Security – Funds invested on CDs are fully secured by the federal government, which through the FIDC and the National Credit Union Administration for funds in credit unions, insures up to $250,000 in individual CD accounts in banks and credit unions respectively, from the institutional reconstruction.
No penalty CD
No-penalty CDs are special types of Certificates of deposit that won’t charge you for withdrawing funds from your CD account before maturity.
Most no-penalty CDs have a one-year term. Withdrawals can be made anytime from one week after the initial deposit. This is unlike the ordinary CDs that charge you for withdrawing before maturity.
Apart from the unmatched flexibility, no-penalty CDs also attract high interest so you can grow your savings.
Ordinary CDs also have fixed rates, which is a disadvantage when there’s a rise in the market rates. However, with no-penalty CDs, it’s different. You don’t have to wait till maturity to withdraw your funds. You can withdraw anytime and invest in CDs at higher rates.
But, on the flip side, these CDs attract lower rates. And, you also can’t make partial withdrawals. You’ll, therefore, be forced to withdraw all the amount and close your account.
Marcus, CIT Bank, and Ally Bank have some of the best rates on no-penalty CDs. Be sure to check them out.
What are the average CD rates?
CD rates are determined by the present market average, your financial institution, and your chosen CD term. Your principal amount could also determine how much your rates are.
The federal reserves are responsible for deciding what the market rates will be. The current market average is 0.19% for a 1-year CD, and 0.32% for a 5-year CD to represent short-term and long-term CDs respectively.
Online banks and credit unions have the best rates in the market. Prioritize them when shopping around for good rates. Also, don’t be afraid to invest with new and less-known financial institutions. These often offer better rates so they can attract new customers.
Competition in banks and other financial institutions will also influence the CD rates offered.
Because of the shaky economy, investing can be tricky. And you can easily lose money if you don’t conduct proper due diligence before investing. Certificates of Deposit have, however, been a good place to save and grow money.
CDs come with higher rates than traditional savings accounts. Plus, investing in them helps you cultivate discipline and commitment. Further, funds invested in CDs are fully insured by the federal government.
Since your funds will be locked with a fixed rate, you won’t be affected by market turbulence and such things as the downward trend of the market average. This is a good place to invest your business’ funds. The table above has the best CD rates for business accounts. Check them out, and grow your savings safely.