Money Market vs. High-yield Savings Accounts: When To Use Each for Your Business
Tom has 15 years of experience helping small businesses evaluate financing and banking options. He shares this expertise in Fit Small Business’s financing and banking content.
This article is part of a larger series on Business Banking.
Both business money market and high-yield savings accounts provide the ability to save excess funds while earning interest. The key difference between a money market and high-yield business savings account is that money market accounts allow you to write checks, something that high-yield savings accounts don’t provide. We explain how both types of accounts work.
When To Use Business Money Market Accounts
Money market accounts are bank accounts that allow you to save money, earn interest, and write a limited number of checks. While some banks offer an annual percentage yield (APY) on a low minimum balance, others require a balance of at least $10,000 to earn interest. Money market accounts are best used in the following scenarios:
- Your business has a large amount of excess cash in your business checking account
- There may be a need to write occasional checks
- You can maintain a higher minimum balance requirement
If you feel like your business fits this picture, consider a business money market account from First Internet Bank. Its money market account’s minimum balance requirement is lower than many other banks and it offers a competitive 0.40% APY. First Internet Bank also offers business checking and other services for your business.
When To Use a High-yield Business Savings Account
High-yield business savings accounts are a safe and convenient option to deposit your extra business funds while earning interest; however, you won’t have the ability to write checks. It’s best to use a high-yield savings account in the following scenarios:
- If you want to build an emergency fund for your business and don’t need frequent access to withdraw funds
- You have extra cash built up in your operating account that isn’t being used
- You have a planned expense or purchase within the next several months that isn’t large enough to require a loan
- You don’t need to write checks to move money out of the account
If you need a bank to set up a business savings account, Live Oak Bank offers a very competitive interest rate on their business savings account with no eligibility requirements and no monthly maintenance fee. Live Oak Bank, one of our recommendations for the best business savings account, also offers checking and lending solutions that are designed for your business needs.
When To Use Regular Business Savings Accounts
Some banks may tier their savings accounts based on potential average balance, offering a high-yield product as well as an entry-tier business savings account. In these instances, a high-yield business savings account typically has balance requirements similar to that of a business money market account. In some cases, a high-yield savings account may only be available to clients with a large relationship with the bank.
If your business is just starting to save reserve funds and is unable to meet the balance requirements, a regular business savings account is your best option. Most banks can convert a regular savings account to a high-yield savings account easily.
Comparison Between Money Market Accounts & High-yield Business Savings Accounts
Money Market Account | High-yield Savings Account | |
|---|---|---|
APY | 0.01% to 0.85% | 0.01% to 1.00% |
Account Monthly Fees | Up to $20; waived if balance minimums are exceeded | Up to $15; waived if balance minimums are exceeded |
Deposits | Allowed, although cash may be subject to fees above the bank’s monthly deposit limit | Allowed, although cash may be subject to fees above the bank’s monthly deposit limit |
Withdrawals | Banks may set a limit on withdrawals, transfers, or checks per month from money market accounts before assessing a per-transaction fee on additional withdrawals. | Banks may set a limit on withdrawals or transfers per month from high-yield savings accounts before assessing a per-transaction fee on additional withdrawals. |
Check Writing Ability | Yes | No |
Business money market and high-yield savings accounts both offer interest rates that are calculated based on your balance. Banks may give a bump on an interest rate to balances either above or below certain dollar amounts, such as $100,000, based on a bank’s targeted customer. Money market accounts tend to have higher monthly fees and minimum balance requirements compared to high-yield business savings accounts. The monthly fees for both accounts can be waived by exceeding balance requirements in either the account or the overall relationship.
Regarding restrictions on deposits and withdrawals, both high-yield business savings and money market accounts are the same. There are no limits for deposits. although allowed cash deposits without a fee may vary from bank to bank. With transfers and withdrawals, in 2020 the Federal Reserve announced an interim final rule that allows unlimited withdrawals from both money market and savings accounts. However, financial institutions may still limit the number of free account withdrawals and transfers at their discretion and many still maintain the historic limit of six withdrawals that the Federal Reserve previously mandated.
Opening either a business money market or high-yield savings account will require you to provide the same documents as you would when you open a business checking account. This set of documents includes:
- Government-issued photo identification, such as a driver’s license or passport, for all account signers
- Social Security number
- Proof of business entity, such as articles of incorporation or; for sole proprietors, fictitious name registration
- Employer identification number
If you have a business checking account at your bank, you likely won’t need to provide this information again but contact your bank prior to make sure that’s the case.
Similarities of Money Market & High-yield Savings Business Accounts
Both money market and high-yield savings accounts offer a safe place to place your reserve business funds as they’re covered by Federal Deposit Insurance Corp. (FDIC) insurance when you open an account in a federally insured bank. Some banks put withdrawal limitations on both accounts, but the restrictions may vary depending on the bank. Both accounts also allow business owners to earn interest on their deposits. While money market accounts used to offer higher APY, some high-yield business savings accounts recently have been offering similar or better returns with lower minimum balance requirements.
Differences Between Money Market & High-yield Business Savings Accounts
While a money market account is like a savings account in many ways, it offers the ability to write checks to withdraw or pay funds. A high-yield savings account doesn’t offer this function. Business savings accounts typically have a lower minimum balance requirement to earn interest and avoid monthly service charges while most money market accounts have a higher balance requirement. This extends to high-yield savings accounts as well. Both accounts usually have associated fees. However, it’s much easier to find a savings account with zero to low fees or those that can be waived easily.
Bottom Line
Both business money market and high-yield savings accounts offer a great tool for your small business to save extra funds while earning some interest. If you need to write occasional checks, a business money market account is the best option. If you don’t, the best account choice may come down to the one that offers the best interest rate and fewest fees and it may end up being a high-yield savings account. If you’re unsure of where to open a money market or high-yield savings account for your business, consider using one of our recommended best banks for business to maximize your earning potential.
