What Are High-Yield Business Savings Accounts?
Putting your money in a high-yield savings account is a great way to earn interest. Read on to learn more about making savings accounts work for you.
If you’re a business owner looking to be strategic with your savings, high-yield savings accounts may be worth considering. These accounts offer notably higher interest rates compared to traditional savings accounts, and you might even be able to open one through the bank or credit union you’re currently enrolled in. The best banks for small business bank accounts all should offer savings accounts with competitive interest rates.
Let’s go over what high-yield savings accounts are, their pros and cons, and what to look for to help you decide whether they’re the right fit for your financial goals.
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What Is A High-Yield Savings Account?
High-yield savings accounts are special types of savings accounts that offer significantly higher interest rates on the money your store — sometimes up to more than ten times higher than the annual percentage yield (APY) on a standard saving account.
Of course, this means your hard-earned money can grow at a faster pace, helping you reach your financial goals sooner and giving you more incentive to save.
Both banks and credit unions are able to high-yield savings accounts to businesses. You can also open an account through online banking platforms, which may be more convenient than taking time out of your busy week to set one up in person.
How Do High-Yield Savings Accounts Work?
Maybe your business has been generating a solid amount of income, and you’ve been storing that cash in a traditional business savings account. You want to make more passive income on your savings, but you don’t want to risk your funds evaporating in a volatile marketplace.
A high-yield savings account is the middle ground for business owners in this scenario.
High-yield savings accounts work just like traditional savings accounts; account holders place deposits through the account and earn annual percentage yields (APY for short) on what they store.
Currently, the best available high-yield savings accounts will generally offer APYs starting at 4% of your deposits. And that’s towards the low end.
So, for example, say you deposit $25,000 into a high-yield savings account with a 4% APY. After one year, assuming you make no withdrawals or further deposits, you will have gained $1,000 in your savings.
Compare that with the current national average, which is floating below 0.4%, and you can see why these accounts are attractive to savers.
Pros And Cons Of High-Yield Savings Accounts
- Account holders are rewarded excellently for large savings balances and consistent deposits
- Depending on how much cash you can save, compound interest can scale very well over time
- A high-yield savings account can be a great source of emergency funds or cash for a big purchase if you plan on making withdrawals (just try not to exceed any limits)
- The Federal Deposit Insurance Corporation (FDIC) covers up to $250,000 of your savings in the event your bank is insured and shuts down
- Similarly, the National Credit Union Administration (NCUA) covers $250,000 for accounts opened through credit unions
- Interest rates are neither fixed nor immune to Federal action and market fluctuations, meaning APYs can greatly vary over time
- Business owners looking to capitalize on their deposits’ earnings cannot regularly withdraw funds — a different savings account should be used or actively flowing cash
- More often than not, the amount of withdrawals and transfers you can make from a high-yield savings account is limited, and too many in a short timeframe can incur penalties or account closures
- You may need to have a certain balance in your account before the APY activates
- Inflation may outpace the rate at which the account’s APY grants you earnings, leaving you with less buying power as time goes by
How To Open A High-Yield Savings Account
Opening a high-yield savings account for your business is as straightforward as it would be for a traditional savings account. Here are the steps you should take.
1. Shop Around For Accounts That Offer The Best Features
Where you store your money should work with you, not against you. The features of the best high-yield business savings accounts include minimal withdrawal fees and balance requirements, high APYs, and accessibility to branches and ATMs.
If you’re looking for a full suite of technologies and resources, perhaps you would prefer an account with a bank; on the other hand, the community and mission of a credit union may be more your style. Check out the benefits and disadvantages of banks vs. credit unions if you’re on the fence.
2. Have Your Initial Deposit Ready
How much you’ll need to set aside to open your high-yield savings account will vary from institution to institution. Some accounts have no requirements, but you should expect to deposit anywhere from a few hundred to a few thousand dollars at a minimum.
It’s important to note here that the APY advertised by some banks and credit unions won’t kick in until you’ve reached a certain balance on your account. Again, this varies; do your research and communicate with the institution you have in mind so that you can reap the rewards of your savings right away.
3. Fill Out The Application
Similar to how you would open a business bank account, there’s the information you’ll need to provide to the bank or credit union. This typically includes your:
- Social Security number or Employer Identification Number (EIN)
- Proof of identity
- Business licenses
- DBA registration if you’re operating under a business name
The application process may look different depending on your business structure. Sole proprietors without any employees likely won’t need an EIN to open an account — usually, they can use their Social Security number. LLCs will need their articles of organization in addition to the information and documents listed above.
How To Choose The Best High-Yield Business Savings Account For Your Business
Finding the right high-yield business savings account will probably involve some research. Keep these factors in mind as you shop around:
- Interest Rates: The interest rate is one of the most important factors to consider when choosing a high-yield business savings account. Compare APYs from different banks to find the best deal.
- Fees: Not every bank and credit union will charge fees on their high-yield business savings accounts, but you should know whether or not they do. If you can, find an account that doesn’t charge monthly or transaction-based fees.
- Features: Some high-yield business savings accounts offer useful features such as free ATM withdrawals or online account management services. Prioritize features that meet your most immediate needs.
- Accessibility: If you’re constantly traveling or frequently need in-person services, opening an account through a bank or credit union that has a strong network of locations could prove seriously helpful. Alternatively, if an online bank has caught your eye, it ought to have the online account management features you need to do your banking on the go.
- Earning Potential: While a high APY is bound to garner attention, always read the fine print before opening an account. Some accounts may only offer that APY on a capped portion of your balance or even limit how much you can earn in interest through the year.