The Ultimate Guide to Business Banking

From exciting expansions to exasperating emergencies, all business owners will eventually find a need for savings. When that day comes, will you be ready?

A business savings account is a place to store your cash for major expenditures. Some business owners are surprised to learn that the method you use to save money can actually impact how much you have available when it comes time to spend it.

Here are the benefits of using a business savings account, and how to maximize your savings by storing it in the right place:

A business savings account, sometimes called a business reserve deposit account, is a lot like a personal savings account. It is a safe, FDIC-insured place to stash your money away for long periods of time, while earning interest on your funds.

Like personal savings accounts, business savings accounts come in many different forms, each with their own restrictions and benefits.

The better you understand different types of business savings accounts, the more capable you will be of making the right choice to meet your savings goals.

Business Savings

Did you know that banks use the money you save in their vaults to make loans and investments? The more money is saved in the bank, the more they have to work with. 

That’s why banks offer interest earnings as an incentive to use their savings account services. Smart savers can earn money by simply leaving their cash in the right place.

The best standard bank savings accounts will be insured by the FDIC and offer competitive interest rates. This interest rate is also called an annual percentage yield (APY). Often, there will be a minimum balance required for initial business savings investments.

Most business savings accounts will specify a maximum number of withdrawals you can make over a period of time. This helps you resist the temptation to use funds for smaller or non-emergent purposes.

Certificates of Deposit

You can think of a certificate of deposit (CD) as a very strict savings account.

Essentially, you’ll invest a certain amount of money for a predetermined period of time (for example, $2500 for 12 months). The best long term deposit interest rates available will vary, so shop around to check out rates and minimum investments.

At the end of the investment period, you’ll have access to your original investment PLUS, you’ll have earned interest as specified by the CD’s terms.

If you’re looking for easy access to business savings, a CD may not be the best choice. If you need to withdraw your money before the CD’s maturity date, you’ll likely pay a hefty penalty.

Business Money Market

Commercial money market accounts are a great option if you’re looking for the best term deposit accounts available. With this type of savings account, your bank will invest your funds in market opportunities and pay you a share of the earnings.

Interest rates are typically tiered, with higher yields being paid for larger savings investments. The best bank term deposit rates for this kind of savings account are around 0.10%.

Once you have an understanding of the various types of business savings accounts available, you can begin to take a closer look at their features.

Here are some of the most important considerations when choosing the best business savings accounts for your needs:

Interest Rates

Interest rates for savings accounts are a lot more fun than interest rates for credit cards. Savings interest is paid to YOU based on the amount of money you’re saving and the terms of the accounts.

Interest rates vary depending on the type of account, current business investment rates, the amount of money you’re saving, and the length of your savings (for term deposits like CDs).

• Best 1-year fixed rate savings
• Best 2-year fixed rate savings
• Best 3-year fixed rate savings
• Best 5-year fixed rate savings

Your savings account will be in your business’s name, not yours. This is important for a few reasons:

• It keeps you compliant with government regulations, ensuring that your personal and business finances are kept separate from each other.
• It shields your personal finances in the event of legal action against your business. While your business savings may be fair game in a dispute, your personal finances will not be involved.
• Bookkeeping is simplified, as your business funds are not commingled with personal funds.

If you’ve already begun sorting through savings account offers, you may have noticed that there’s a lot to choose from. What’s the best option for your business? How can you make sure you’re getting a good interest rate for the money you save?

• The national average interest rate for savings accounts
• The national average interest rate for money market accounts
• The national average interest rate for CDs (from 1-month to 60-month terms) 

The ideal business savings ratio is tricky. On one hand, you need enough saved to cover emergencies or take advantage of growth opportunities. On the other hand, saving TOO much can leave you with neglected areas of your business, underpaid employees, and a stressful cash balancing act.

Ideally, you should keep enough cash in savings to cover three to six months worth of business expenses. This will help keep you afloat through unexpected lulls in business or emergency situations.

This number may change as your business grows. For example, if you know you’ll need to upgrade or replace expensive equipment in the future, you may want to increase your savings contributions.

And of course, after making important business changes such as expansions or other costly commitments, your savings balance will take a dip. Stay focused and keep an eye on the road ahead to be as prepared as possible for what’s to come. 

At Vast Bank, we’ve carefully tailored our business savings options to ensure that you can find the perfect balance between convenience, growth, and interest earnings.