8 Best Ways To Earn Interest for Your Business
This article is part of a larger series on Business Banking.
Interest-bearing accounts help your business make passive income off of financial reserves. Although they offer lower yields than investments, they are far more reliable and come with no risk of loss. If you have reserve funds in a bank, then these accounts can enable your money to grow and help you meet your savings goals. The list below outlines the eight best ways to earn interest for your business.
1. Open an Interest-Bearing Business Checking Account
Today’s best small business checking accounts offer the option to earn interest on your account balance. With traditional brick-and-mortar banks, these interest-earning accounts are usually not the lowest-tier account. Interest-earning accounts from traditional banks typically charge monthly account maintenance fees, although most can be waived by meeting specific activity requirements.
If you want to earn interest on your checking balances without paying monthly fees, digital-only providers tend to offer more affordable options. Many digital providers offer interest-bearing business checking accounts. However, many of these accounts either put a cap on interest-earning balances or have tiered interest rates that decrease as balances increase.
Bluevine leads the way with interest-bearing checking accounts, providing an annual percentage yield (APY) of 2.00% on balances up to and including $250,000 as long as you meet its eligibility qualifications. Visit its website for more information or to open an account.
| PROS | CONS |
|---|---|
| Great way to earn money on your primary business checking account | Can have limits on how much money you can earn interest on |
| Many offer no transaction limits or at least higher transaction limits than savings accounts | Can be hard to find business checking accounts that offer a good APY rate |
Before opening a new account, check out our guide on how to open a business bank account.
2. Open an Interest-Bearing Business Savings Account
While interest-bearing potential isn’t a common feature for entry-level business checking accounts, interest-bearing business savings accounts are standard across most financial institutions. However, you can usually find the best interest rates with online-only providers, which have high-yield savings accounts that earn interest at rates up to 25 times the national average.
Savings accounts usually have fewer high-end limits on balances that earn interest, although some have tiered accounts that offer higher APY based on the balance amount. One big downside to business savings accounts is that they limit your access to your money. Many business savings accounts are still limited to six monthly withdrawals and transfers and charge steep fees for excess transactions.
If you’re looking for an interest-bearing savings account, Live Oak Bank is a great choice. It offers 3.10% APY on its savings account and has no monthly fees or minimum opening deposit requirements. To open a savings account, go to its website.
| PROS | CONS |
|---|---|
| Great way to earn money on your primary business checking account | Can have limits on how much money you can earn interest on |
| Many offer no transaction limits or at least higher transaction limits than savings accounts | Can be hard to find business checking accounts that offer a good APY rate |
3. Open a Business CD
A certificate of deposit (CD) is a type of savings account that provides higher-yield interest rates at the cost of limited account accessibility. When you deposit money into a CD, you agree to leave it untouched for a fixed period. This means that you cannot withdraw or make additional deposits into a CD within the agreed-upon term, and if you need to terminate before your maturity date, there are often financial penalties.
If your business has reserves that are unneeded for upcoming expenses, CDs are a great way for those reserves to earn you money. Some CDs have rates of more than 3%, and most CDs will increase interest rates on longer terms and larger balances.
If you want to invest in CDs, Live Oak Bank is a great provider. The bank has some of the highest rates on six-month and one-year CDs, which allow you to earn more right away, giving you more to invest later. More information can be found on the provider’s website.
| PROS | CONS |
|---|---|
| Often earn higher interest rates than interest-bearing checking and savings accounts | Don’t allow you to make regular transactions (deposits and withdrawals) |
| Allow you to take reserve funds not earmarked for upcoming expenses and earn money on them | Most banks charge a financial penalty for withdrawing early from a CD, which can include some or all of the earned interest |
4. Use the CD Laddering Technique
If you want to take advantage of CD interest rates without sacrificing fund accessibility, it’s best to use the CD laddering technique. This is the process of taking out multiple CDs with multiple term lengths.
Let’s say you have $15,000 in excess funds. Instead of storing the entire lump sum into a three-year CD, you can deposit $5,000 into a one-year CD, another $5,000 into a two-year CD, and another $5,000 into a five-year CD. This way, you will have access to your savings each year. If one term ends and you still don’t need to use your savings, you can keep reinvesting your funds.
This is a great technique in a rising-rate market, as money reinvested from a matured CD will likely be going into a new CD at a higher rate. However, this can be less lucrative in a rate-declining market because each matured CD will be rolled over into a new CD with a lower rate.
If you want to start a CD ladder, First Internet Bank is an excellent provider. It offers rates of 2.02% APY on three-month CDs and 4.39% APY on 60-month CDs. For more information, visit the company’s website.
| PROS | CONS |
|---|---|
| Allow you to keep more of your financial reserves liquid with CDs regularly expiring, giving you access to your funds | While funds become available more often than with just one CD, they are still tied up and can’t be withdrawn early without penalty |
| Can earn larger amounts of money in a rate-rising environment, as each maturing CD can be reinvested at a higher rate | Earnings can stagnate in a rate-decreasing environment, as each maturing CD would be reinvested at a lower rate |
5. Open a Business Money Market Account
Similar to a business savings account, a business money market account allows you to deposit funds into an interest-bearing account. As with a savings account, there are limits to the number of free withdrawals and transfers you can make each month. However, unlike savings accounts, you get unlimited deposits.
Many business money market accounts charge monthly fees, although they often can be waived by meeting certain activity requirements. In the past, you could expect to earn higher interest rates with a money market account vs a savings account, but this is no longer always the case, so be sure to shop around to get the best rates.
First Internet Bank is a great choice for money market accounts because it earns interest at a rate of 2.50% on balances up to $5 million and 3.80% on balances above $5 million. To learn more, visit its website.
| PROS | CONS |
|---|---|
| Allows you to earn high rates of interest while still giving you access to your funds | Limited number of free transactions; fees for going over limits can be very high |
| Often earns higher interest rates than savings accounts, although that can vary among financial institutions | Some money market accounts come with monthly fees, which might be higher than the amount of interest earned |
6. Look for Higher-Yield Introductory APY Rates
If you can’t meet the requirements to earn interest on high-yield checking and savings accounts, you might be able to find an account that offers a higher APY as an introductory bonus. Usually, the APY will be considerably higher than normal for a set period after opening the account. Once the period is over, the rate will lower to whatever the account’s standard APY is.
While not as ideal as an account with a rate that stays high, choosing an account with promotional APY rates and increasing earnings during the introductory period is better than settling for an account with a very low APY. Once the introductory period is over, you can keep the account if the regular APY rate it offers is decent. If the account’s regular APY is too low after the introductory period, the savings you’ve built can help you qualify for a higher-interest account at another financial institution.
Capital One is one provider that offers an introductory rate on its business savings accounts. You earn interest at a promotional APY rate for the first 12 months, and at the end of the period, the rate returns to the standard variable APY rate. To open an account, visit a branch in Virginia, Texas, New York, New Jersey, Maryland, Louisiana, or Washington, D.C. More information is available on the company’s website.
| PROS | CONS |
|---|---|
| Great way to earn a higher interest rate on a new account, especially if you can’t qualify for higher-yield bank accounts | Rate is for a limited time, and permanent rate is often very low compared to other interest-bearing accounts |
| Allow you to build a business banking relationship with a new bank, which might help when needing other business products | Intro rates on some accounts are much lower than standard rates on other accounts |
7. Look for Tiered APY
Many providers reward users with larger savings by offering tiered interest rates that increase with higher balances. For example, a bank might offer 0.50% interest on balances up to $50,000, 0.75% on balances from $50,000 to $499,999.99, and 1.00% on balances of $500,000 and over.
One advantage of the tiered APY system is that it incentivizes building your savings fund. If you intend to grow your reserve funds, choosing business savings accounts with tiered APY can be a great way to increase your earning potential.
Prime Alliance Bank offers excellent tiered interest options. Interest rates range from 0.75% for balances less than $100,000 to 1.10% for balances of $200,000 and above. It has no monthly maintenance fees or minimum balance requirements but has a limit of six withdrawals and transfers each month. To learn more, visit its website.
| PROS | CONS |
|---|---|
| Incentivizes increasing your savings balances | Requires larger balances |
| Gives access to higher interest rates | Is not a good fit for startups |
8. Open an Account With Your Local Credit Union
When comparing interest rates of traditional banks vs local credit unions, the credit union will almost always offer higher APY and tend to charge lower monthly fees. Traditionally, credit unions only offered their services to members of partner communities or organizations, but today, most of the best small business credit unions allow applicants to acquire membership by paying small one-time donation fees.
However, there are some potential drawbacks to credit unions. While they offer higher rates than traditional banks, they might be unable to beat the rates of online-only banks, so shop around to determine the best rates.
For a credit union with interest-bearing accounts, Affinity Plus Federal Credit Union is a good choice. It has interest-earning checking and savings accounts and other lending and financial products. Membership is open to everyone, but businesses outside the Affinity Plus FCU service area must pay a small donation fee. Check out its website for details.
| PROS | CONS |
|---|---|
| Usually will earn higher interest rates than a traditional, brick-and-mortar bank. | Rates may not be higher than online banks. |
| Usually offer a full-service banking experience with business products to help your business grow. | Membership may be limited to a workplace or geographic requirement and may not be open to everyone. |
How To Know Which Techniques Are Right for You
Although any of the account types and techniques listed above can help you make money, typically, the best savings strategy is to select the account or technique that earns your business the most money at the lowest cost. However, it’s also important to consider factors like interest caps, fund accessibility, and transaction limits, which may affect your banking experience.
To determine which best suits your business, consider the following questions:
- How much money will be earning interest?: Some accounts have a cap on how much money can earn interest, and others have different rates for different amounts of money.
- How liquid do I need the funds to be?: If you have reserves you won’t need to touch for months or years, you can opt for a CD, which charges fees for early withdrawals but offers higher interest rates. If you need to access funds frequently, you might need a checking or savings account.
- How many transactions will I need?: Checking accounts offer practically unlimited transactions. However, savings accounts charge high fees after six withdrawals or transfers, whereas CDs don’t allow transactions without penalty.
Bottom Line
Having an interest-bearing account helps your business earn money passively from its reserves. All the options we listed can help your money work for you, but each has specific times when they’ll work best for your business. Consider which fits your business needs best and open an account that will allow you to earn interest with whatever level of access to your money you need.
