Put simply, a business money market account provides the flexibility of a checking account while typically offering higher growth than a traditional savings account. Unlike a CD, a business money market account generally allows both withdrawals and deposits. Rates are often tiered so the higher your account balance, the higher your interest rate.
Let’s take a closer look at some of the benefits a business money market can provide:
Business Money Market Advantages
A money market account provides several benefits for businesses. Many money market accounts allow you to write checks or use a debit card tied to the account, providing business owners with easier access to their funds. This could be useful for larger purchases that you may not want to pay for from your business checking account. Other advantages include:
• Greater Liquidity. Business profits that are invested in stocks, bonds, or real estate can be somewhat difficult to access as cash when needed. For this reason, it’s a good idea to ensure you have at least funds accessible in a deposit account like a money market. Being able to withdraw money for your business when you need it gives you greater flexibility and control over your cash reserves.
• Capital Preservation. With a business money market account you likely won’t see the big gains that some other investments can produce, but the funds in a money market are protected from market losses. A business money market account provides a known, stable interest rate and up to $250,000 of your deposit is generally protected by FDIC insurance if your account is opened at an FDIC-insured bank. If you open an account at a DIF-insured bank like BankFive, your entire deposit will be insured, even amounts in excess of FDIC limits. Even if you are a small business that hasn’t considered investing in higher-risk options such as stocks, a money market account allows your money to grow without gambling it.
• Savings for Long-Term Needs. You might consider making regular deposits to a business money market account as a way to save up for future capital investment. Even if you have a checking and savings account in addition to a business money market, you can allocate certain funds or deposits to this account to get the most out of your interest-rate. A money market account could also be a good place to keep the money you will need to pay your business’s quarterly tax payments.
Be aware that most business money market accounts require a minimum deposit to open the account as well as a minimum balance to earn the specified interest rate. For some accounts, if your balance falls below the minimum level a fee may be incurred. Ever since the Federal Reserve’s Regulation D was suspended in 2020 there is no federally-mandated limit to how many times you can transfer funds out of a business money market account on a monthly basis, but some financial institutions may still have their own transfer or withdrawal limits regarding money market accounts.
Should I Consider Opening a Business Money Market Account?
If your business doesn’t currently have a dedicated deposit account for savings, or if your business has enough funds to move to a new account, it could be a good time to try a business money market. Any business profits that aren’t immediately needed to pay current liabilities, such as payroll or inventory, can potentially be placed in a money market to earn you interest instead.
Because you will likely keep a larger amount of funds in a business money market than you would in a business checking account, it can be a good place to save for long-term business goals. With a money market you will likely earn more interest than you would with a regular savings account, allowing you to reach your goals faster. It could also be used as an emergency fund since a money market typically allows for quick withdrawals should something go wrong within your business. SCORE, a partner of the SBA, recommends businesses keep between three to six months’ worth of operating expenses in an emergency reserve fund like a business money market or savings account.
If you are a small business owner in Massachusetts or Rhode Island, contact us to today to learn how your business can benefit from a money market account, or work with our dedicated Business Banking team to open your account today.