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There is a savings vehicle that could be making your business guaranteed money. All you need is a small deposit (As little as $500) that you can spare for anywhere from a few days to a few years.
A Business Certificate of Deposit (CD) does the rest – Growing your deposit at a fixed interest rate for a fixed period of time.
Like personal CDs, business CDs are a low-risk, high-reward way to save and grow money, only they are designed to benefit your business, instead of your personal finances. At the end of your deposit’s term, it may feel like you are uncovering hidden treasure, but you are actually reaping the rewards of a smart financial decision.
Business CDs: Your Treasure Box
Every treasure needs a box to keep it safe. In business banking, this box is your business certificate of deposit. It works by allowing your business to deposit funds at a fixed interest rate for a specific period of time (often 31 months to 10 years, though you can get CDs with shorter terms).
When the CD matures, or reaches the end of its term, you can cash out the CD and use the money toward your business goals, renew the CD, or roll it over to a new CD with a new term and interest rate. That is the equivalent of pulling the treasure out of its box, keeping it in the same box, or putting it in a different box and burying it in a different location.
The minimum deposit required for opening a business CD varies by financial institution, but is usually between $500 and $5,000. That means you do not need to take a huge amount of money out of your business in order to save with interest. You can simply take the money you have to spare and grow it for later use.
Be aware that longer-term business CD accounts usually offer higher interest rates than shorter-term CDs, so if you want to make the most out of your investment, choose the longest amount of time that you can COMFORTABLY go without the money you are depositing.
Business CD Benefits: The Treasure
There isn’t one good reason businesses choose CDs as savings vehicles – There are many good reasons. Here are a few ways in which business banking that includes CDs can help you build treasure for your company:
Higher Interest Rates
Business CD accounts typically provide higher interest rates compared to regular savings accounts, helping you to grow your treasure faster. Your rate could be between 3 and 5 percent, depending on the CD you choose.
Predictable Returns
Since most business certificates of deposit use fixed interest rates, meaning the interest rate stays the same over the term of the CD, you know exactly how much money your deposit will earn. That is a low-risk way to guarantee that your business will have a certain amount of money after a certain amount of time.
FDIC Coverage
The FDIC insures business CDs up to $250,000 per person per account ownership type. That gives you peace of mind that even if your financial institution closes, your money is still safe.
Laddering Options
If you want to grow your business treasure as fast as possible, without giving up liquidity, you can also choose to ladder your business CDs. This term refers to the practice of taking out several CDs with differing maturity rates. As each CD matures, you can access the money if you need it, or reinvest it in another CD.
What to Consider: Treasure Hunting
Before deciding on a business CD account, you must consider liquidity and access to funds. Unlike regular savings accounts, business CD accounts require locking away your funds for a predetermined period, limiting immediate access.
Early withdrawal penalties are another factor you have to think about before making CDs part of your business banking. Withdrawing funds early can cost you big fees that can wipe out your interest and even cut into your original deposit.
When hunting for the right business CD, make sure you only invest what you can afford, and only for the amount of time that you can comfortably afford it. Your CD should fit with your financial planning and cash flow so it can deliver the highest possible benefits for your company.
If your company is ready to enjoy the benefits of a business certificate of deposit, let Bank of South Texas help. Our more than 30 years of business banking experience within the Rio Grande Valley equips us to help you achieve your goals. Contact us today!