Business Money Market vs CD: Which Is Best?
This article is part of a larger series on Business Banking.
A business money market account (MMA) and a business certificate of deposit (CD) are interest-bearing accounts that allow you to earn money on your business financial reserves. They, along with business savings accounts, earn less interest than investment accounts because they’re considered low risk. Both are Federal Deposit Insurance Corporation (FDIC)-insured for up to $250,000 per account holder.
MMAs allow you to deposit and withdraw money anytime, although many still limit you to six fee-free monthly transactions despite the Federal Reserve Board’s lifting of that requirement. Meanwhile, CDs require you to deposit money into an account and leave it for a set period. Withdrawing your money before the CD expires can result in early-withdrawal penalties.
If you would like to open a business money market account or CD, First Internet Bank is a great option. It offers a business money market account earning between 2.53% annual percentage yield (APY) and 3.87% APY. Business CDs earn between 1.51% APY and 4.39% APY, depending on the length of the CD. Visit First Internet Bank’s website for more information.
Comparing Business Money Market Accounts, Business CDs & Business Savings Accounts
There are three types of business bank accounts that allow you to earn interest on reserve business funds. In addition to business MMAs and CDs, you could choose to open a high-yield business savings account. The table below compares some of the differences between the three account types.
Business Certificate of Deposit | |||
|---|---|---|---|
Best for | Businesses with large reserves they don’t need to access regularly | Businesses with very large reserves they won’t need to access for months or years | Businesses with smaller reserves they might need to access regularly |
Interest Rate Offered | Similar to, but usually higher than, savings; lower than CD | Highest of the three | Similar to, but usually lower than, money market; lower than CD |
Liquidity of Funds | Can withdraw funds anytime, subject to monthly transaction limits | Unable to withdraw money for a fixed period; early withdrawal penalties are very high | Can withdraw funds anytime, subject to monthly transaction limits |
Check Writing Capabilities | Yes | No | Usually no |
Relative Minimum Deposit | Highest of the three | Similar to money market, but higher than savings | Often the lowest |
When To Use a Business Money Market Account
When comparing a business CD vs an MMA, choose the latter when you:
- Need easy access to your money
- Plan to deposit and withdraw money from your account regularly
- Don’t mind earning lower interest returns in exchange for liquidity
- Often have large, unplanned expenses that might require using your reserve funds
Business Money Market Account Pros & Cons
| PROS | CONS |
|---|---|
| You earn strong interest returns on your business reserves. | Some accounts have high minimum balance requirements that might result in monthly fees or limited interest earning. |
| It is a low-risk investment, with funds insured by the FDIC for up to $250,000. | Penalties for exceeding six monthly transactions can include fees or account reclassification. |
| Some banks have relaxed or removed monthly transaction limits. | Inflated introductory rates with some banks could have you looking for a new account after the intro period ends and APY drops. |
When To Use a Business CD
When comparing a business CD vs an MMA, choose the former when you:
- Have financial reserves that you can leave untouched for several months or years
- Want to earn higher interest returns and are willing to sacrifice liquidity of reserve funds
- Are OK with potentially paying a penalty if you have to withdraw the money early
- Have other reserve funds in a savings or MMA account that can be used for unexpected expenses
Business CD Pros & Cons
| PROS | CONS |
|---|---|
| You earn higher interest rates than savings and money market accounts. | Your business reserve funds will be tied up for a set period. |
| It is a low-risk investment, with funds insured by the FDIC for up to $250,000. | You may have to pay large early-withdrawal penalties if you have to remove funds early. |
| There are a variety of term options that allow you some flexibility and can allow you to create CD ladders to keep funds more liquid. | Depending on the length of the term, earnings might not keep up with inflation, which might cause you to lose money. |
When To Consider an Alternative
There may be times when a business savings or a business checking account is a better option. If you have smaller reserve amounts that you might need more regular access to, then a business savings account may be a good fit. It’ll have the lowest interest earnings of the three types of savings accounts but often allows you the most regular access to your money without penalty.
If you need constant access to your funds with unlimited transactions, then an interest-earning business checking account may be the best choice. You won’t have to worry about paying any fees for exceeding transaction limits and can still earn some interest on your business finances. Before opening any new account, check out our guide on how to open a business bank account.
Bluevine is a great choice for an interest-earning business checking account. It’s largely a fee-free account that earns 2.0% APY on all balances of $250,000 or less. Visit Bluevine’s website for more information.
Frequently Asked Questions (FAQs)
What is a business money market account?
A business MMA is an interest-bearing business bank account that typically earns interest at a higher rate than business savings accounts. However, MMAs earn less interest than investment accounts because they’re considered low risk.
A business MMA can be funded via automated clearing house (ACH) transfer, check or cash deposit, or incoming wire transfer. Once the money is in your account, you can leave it to draw interest, withdraw it, or transfer it to another account.
Which is better: CDs or money market accounts?
Both CDs and money market accounts (MMAs) are great ways for your business to earn interest on its reserve funds. If you need regular access to your funds, a business MMA allows you that access. If you don’t need your reserves for a set period, then a business CD is the best option because it’ll earn you a higher interest rate than a business MMA.
Why do businesses use money markets?
Businesses use money market accounts to earn interest on reserve funds that aren’t needed for a company’s day-to-day operation. While this type of account doesn’t earn as much interest as a business CD, it allows you consistent access to your funds while earning interest without early withdrawal penalties typical with CDs.
Bottom Line
A business money market account or a business certificate of deposit can help your business grow by earning interest on your company’s reserve finances. If you’re looking to earn the maximum amount of interest and aren’t worried about reserve liquidity, a business CD is the best option. If you don’t mind earning less interest to have access to withdraw and deposit funds in your account regularly, a business money market account makes the most sense.
