Starting and growing a business is an exercise in the unexpected. Tomorrow will likely be very different than today, so it pays to be prepared. Opening a business savings or money market account can help ensure you always have money on hand to tackle challenges and seize opportunities for growth as they arise. These kinds of accounts make it easy to keep tabs on your savings, and often offer better interest rates than checking accounts. These three steps will help you determine the best type of savings account for your business.
Before you open a business savings account, calculate how much in liquid assets your business currently has. From there, you can decide which type of account is best for you.
Business savings account: A business savings account is designed for surplus cash you don’t need to access on a regular basis. It’s a smart option for entrepreneurs who have $5,000 or more in savings, says Carl Wynja, a regional president at U.S. Bank. Unlike checking accounts, business savings accounts typically don’t include checking services, but they offer higher interest rates and the ability to separate your savings from the ebb and flow of revenue and operating expenses.
Money market accounts: If you’re feeling stable in your business and its profits, a money market account can be a good option. Once a business’ savings exceed a certain amount— a general marker is $10,000—Wynja recommends opening a money market account. Compared to business savings, money market accounts typically require higher minimum balances to offset fees, hence the $10,000 threshold, but “pay a higher interest rate depending on the tier of balance you have,” Wynja says. A balance that exceeds $100,000, for example, can pay more in interest than a balance of $50,000, which will pay more than a balance of $10,000.
Once your business has enough excess cash to justify opening a business savings account, the next step is to consider whether that balance is likely to remain relatively steady or fluctuate widely. If you have more than $5,000 in extra cash but expect you may have to dip into your savings in the near future, sticking with a checking account might be the better option. If you’re still feeling confident about opening a business savings account, you can start considering how you’ll use it to help your business grow.
Whenever possible, Wynja recommends small businesses maintain a savings equal to three-to-six months of operating expenses as a buffer against unexpected events or market conditions. An easy way to do this is to activate a business savings sweep, which automatically moves daily excess balances from your checking to savings account. This way, you can work towards your saving goal while maintaining a minimum in your checking account to cover day-to-day expenses.
Many business owners are actively saving towards a goal for their business, whether that be a new office space or the funds to take on new employees. Bankers can help you determine how to achieve your goal quickly and efficiently by looking at your finances one year, two years and five years out, so you have an idea of where your savings should be in order to meet your goals.
Interest rates are one of the most important variables in choosing an account that’s right for your business. High yield interest rate accounts, for example, often have small interest rates, but they can come with more requirements, like maintaining a higher balance or using a debit card a certain number of times a month to avoid fees. Accounts like these sometimes have a cap — in order to get the lower interest rate, you have to have a large amount of money in your account at any given time.
Don’t be afraid to ask your banker questions as you explore your options. “When you are an expert at running your business, also being an expert in banking and finance can be a challenge,” Wynja says. That’s where bankers come in. Wynja and his colleagues at U.S. Bank are able to draw on years of experience helping small businesses navigate the very paths and obstacles you might be facing.
“We know what’s worked, what didn’t, and the potential risks,” he says. “Our job is to make a smoother path for you to run and grow your business.”
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