Investing your business funds can help you grow your money and reach your financial goals. Whether you plan to expand your business or invest in a new project, consider investing your business funds in a business certificate of deposit (CD).
A CD offers several benefits, including high-interest rates and lower risk than some alternative investment options, like savings accounts or stocks. As a result, it’s a popular option for business owners who want to invest wisely and maximize their savings. Read on to learn whether a business certificate of deposit account might be the right choice for your business.
What Are Business Certificates Of Deposit?
A business certificate of deposit is an account designed to help your money grow. Offered by a bank or financial institution, a CD provides an interest rate usually higher than what you could earn by putting your money in a traditional savings account. Interest rates are generally fixed, and your exact interest rate will depend on factors like the banking institution you choose and how much money you deposit.
Unlike traditional savings accounts, where you can withdraw your money at any time, you need to leave your money in a CD for a specified period of time. That period can range from seven days to five years or more. Because the financial institution will have access to your funds for a longer period of time, you’re rewarded with that higher interest rate. CDs that require you to deposit your funds for a longer period of time generally pay the highest interest rates.
If the idea of being unable to withdraw your money for a certain period makes you nervous, some CDs let you withdraw your money early. However, you may need to pay an interest penalty.
Advantages Of A Business CD
If you want to grow your money, a business CD can help. There are several benefits to investing your funds in a business CD.
1. Low-risk investments
Business CDs are low-risk investments that can have high rewards. Since CDs often have fixed interest rates, the return on your investment won’t fluctuate with changes in the market. When you invest your money, you will know your interest rate and the return. CDs are lower-risk than alternative investments, like stocks, where you could lose money due to market fluctuations.
Additionally, if you choose a CD from an NCUA-insured credit union, your CD investment is insured for up to $250,000. A CD is a safe and predictable way to grow money and reach financial goals.
2. Help grow business capital
A CD can be a helpful tool to grow business capital. With a CD, your money can often earn more interest than when deposited into a savings account. You can choose different terms with different interest rates depending on your savings goals.
When the CD reaches maturity, you can withdraw the money and use those funds for your business growth needs. Alternatively, you can reinvest your money in another CD to grow your business capital exponentially.
3. Regular dividend payment
Most CDs pay interest dividends monthly, though some pay quarterly or yearly. As you consider a CD, carefully read the terms to understand how frequently dividends are paid. Some CDs may even let you transfer those dividend payments to another account. These more frequent dividend payments mean you can start seeing and taking advantage of the interest your money generates early rather than waiting a year or more before accessing those funds.
4. Fixed-interest rates
Traditional business CDs usually have fixed interest rates and terms. When you make your initial deposit, you will know precisely how long your money must remain in the account, and you will also see the interest rate you’ll earn throughout the duration of the CD. This fixed interest rate can be beneficial because it won’t fluctuate with market volatility. You can also use that fixed interest rate to determine exactly how much you will make from the CD, which can help you decide if that CD is suitable for your financial goals.
5. Better returns than a savings account
Business CDs typically feature higher interest rates than traditional savings accounts. For example, at Arizona Central Credit Union, a CD of $1,000 with a six-month term features a 2.52% APY. Increasing that minimum balance to $1000,000 brings the APY up to 2.62%.
Choosing a longer CD term can increase those interest rates. A 60-month CD with a $1,000 balance carries a 3.46% APY, and increasing the balance to $100,000 brings the APY up to 3.56%.
In contrast, Bankrate reports that the average interest rate for savings accounts is just 0.24% APY. Investing in a CD can grow your money much more quickly than a traditional savings account.
Factors To Consider When Choosing A Business CD Account
As you explore your business CD options, finding an account right for you and your financial goals is important. Be sure to consider several factors when evaluating a potential business CD account.
CD term
CD terms range from six months to 60 months or more. Carefully consider how long you can comfortably operate your business without needing to access those funds.
While choosing a longer term means you can get a higher interest rate, you will also need to pay an early withdrawal penalty if you need to access those funds. If you’re unsure of which term is right for you, consider starting with a shorter term. You can always reinvest the funds at the end of the term.
Interest rate
Compare CDs from different lenders to find an account with the best interest rate. When comparing interest rates, knowing how much you want to invest is helpful. Some lenders offer higher interest rates for larger balances.
Minimum opening deposit required
Different lenders require different minimum balances to open a CD. These can range from $500 to $2,500 or more. Make sure that you’re comfortable investing the minimum balance a lender requires.
Early withdrawal penalty
Most lenders structure withdrawal penalties as the amount of interest generated during a specific period. For example, a lender might specify the penalty as nine months or 12 months of interest. Be sure to carefully read the CD terms to understand the exact penalty.
When Business CDs Might Make Sense For Your Business
Investing in a CD can help your business funds generate even more income. You might decide to invest in a CD if you have funds you don’t need to use for a set period.
A CD could help you generate money for business expansion, a new project, relocation, etc. Even if you don’t have a specific funding goal, putting your extra savings into a CD instead of a savings account can allow that money to grow even more.
Consider Investing In A Business CD From Arizona Central Credit Union
A business CD can be an excellent investment, helping you to meet your savings goals without putting your money in a high-risk investment. Arizona Central Credit Union offers Business Certificates to help you grow your business capital. Be sure to contact us if you need any additional information.
