7 Best Ways To Earn Interest for Your Business
This article is part of a larger series on Business Banking.
Opening an interest-bearing account allows your business to make passive income off of financial reserves. These are less risky than market investments but offer a lower yield. However, if you have reserve funds in a bank, these accounts can help that money grow, allowing you to meet savings goals. Check out our list below are the seven best ways to earn interest for your business.
Before opening a new account, check out our guide on how to open a business bank account.
1. Open an Interest-bearing Business Checking Account
The best small business checking accounts offer an 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. They often come with monthly fees, although most have ways to get the fees waived based on meeting specific criteria.
A new wave of digital-only financial institutions has arrived, and many offer interest-bearing business checking accounts as the default account type. Many of these either limit how high a balance can earn interest or have tiered interest rates that often decrease as balances increase.
Bluevine leads the way with interest-bearing checking accounts, offering 2.0% annual percentage yield (APY) on balances up to $100,000, so long as you meet one of two 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 |
2. Open an Interest-bearing Business Savings Account
While interest-bearing business checking accounts are a little less common for entry-level accounts, interest-bearing business savings accounts are standard across many financial institutions. When looking for the best business savings account, finding the one with the highest APY is often the objective.
Savings accounts usually have fewer high-end limits on balances that earn interest, although some have tiered accounts that offer different APY based on the balance amount. One thing to watch for with savings accounts is transaction limits and fees. Some business savings accounts are still limited to six monthly withdrawals and transfers and charge high fees for going over that amount.
If you’re looking for an interest-bearing savings account, Live Oak Bank is a great choice. It offers 1.05% APY on its savings account with no monthly fee and no minimum opening deposit requirement. To open a savings account, head over 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. 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’s always high, it’s better than settling for an account with a very low APY because you can earn more money during the introductory period. Once that period is over, you can keep the account if its regular APY is good. If it isn’t, you might be in a position to qualify for a higher-interest account at another financial institution at that point.
Capital One is one provider that offers an introductory rate on its business savings accounts. You can earn 0.20% 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 Capital One’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 |
4. Open a Business CD
A certificate of deposit (CD) is a type of savings account that provides a higher-yield interest rate in exchange for leaving a deposit untouched for a specific period. Like other accounts on this list, a business CD offers a lower risk than investments but a higher yield than an interest-bearing checking or savings. Some CDs offer rates of more than 3%
There are no regular transactions with a CD. You cannot withdraw or deposit into a CD, and if you need to terminate one early, there are often financial penalties. However, if your business has reserves that aren’t needed for upcoming expenses, CDs are a great way for those reserves to earn you money.
First Internet Bank is a great choice for a CD as it offers rates of 0.35% on a three-month CD and over 3% on a 60-month CD. For more information, visit the company’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 |
5. Utilize a CD Ladder
One way to combine the interest-earning capability of a CD with the fund availability of a savings account is to utilize a CD ladder. This is the process of taking out multiple CDs with multiple maturity lengths and it allows you to ensure you have funds coming available every three or six months while at the same time taking advantage of higher rates with CDs.
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, Live Oak Bank is a good option. It has some of the highest rates on six-month and one-year CDs, which allows you to earn more right away, giving you more to invest later. More information can be found on Live Oak Bank’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 |
6. 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. And like a savings account, there are limits to the numbers of free withdrawals and transfers you can make each month—though you get unlimited deposits.
Some money market accounts have tiered interest structures that offer higher interest rates for higher balances. Some also have monthly fees, although they often can be waived by meeting certain criteria. 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.
Prime Alliance Bank offers an excellent money market account. Interest rates range from 0.75% for balances less than $100,000 to 1.10% on balances at or above $200,000. 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 |
|---|---|
| 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 |
7. Open an Account With Your Local Credit Union
When comparing interest rates between your local bank and your local credit union, the credit union will almost always offer higher APY. So, considering a credit union for your small business account is a good idea as it offers most of the services you would expect from your local bank, which is essential for your business as it grows.
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. Also, check if you’re eligible to join because membership might be limited or have specific requirements.
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 for businesses outside its service area comes with a fee, but it’s open to everyone. 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 Accounts Are Right for You
Any of the account types listed here can help you make money on financial reserves. Exactly which one is best depends on a few different factors. You should choose the account with the highest interest rate if all things are equal. However, you need to ask yourself the following questions to determine which account is best:
- 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 choose an account like a CD with higher rates and penalties for early withdrawal. 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. Regardless of how much or little you have in capital, if that money can be earning you interest, you need to find an account that allows it to grow. 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.
