Business CD vs. money market accounts for business: What account is better?

As a business owner, you have financial goals, and different types of accounts can help you achieve them. Two ways to facilitate more savings include certificates of deposit (CDs) and money market accounts. Each has its advantages and choosing the correct type of account will depend on your business needs and situation.

Key differences between business CDs and money market accounts

There are several key differences between business CDs and money market accounts to consider when deciding which is best for your business.

Business money market accounts

• Pays higher interest rates than traditional savings accounts
• Rates fluctuate based on market conditions
• Investors aren’t required to conform to any time-based terms
• Combining features of checking and savings accounts, money market accounts offer debit cards and check-writing privileges

Business CDs

• Pays higher interest rates than traditional savings accounts
• Offers a guaranteed interest rate for a set term, which usually ranges from a month to five years
  
• Removing funds before the completion of the term will incur a penalty
• At maturity, funds can be withdrawn or reinvested in another CD

Do CDs or money market accounts offer higher interest rates?

While business CD rates tend to be higher than money market accounts, it’s not always the case. Business owners should always compare rates. Sometimes, a money market account may pay the same interest as a CD.

“We’re in an odd economic environment, and you can find promotional offers,” says Taylor Genz, Vice President of Business Banking for U.S. Bank. “It wouldn't make sense to tie up money when you can get essentially the same rate for money that's fully accessible. However, with a money market account, the bank reserves the right to change the rate at any time. If you want to lock in a certain rate, it’s best to choose a CD.”

In many cases, businesses can benefit from having both a money market account and CD.

For example, Genz worked with a client who had several million dollars piling up. “We put that in a money market account, and now they’re earning a higher interest rate than before,” he says. “They also had money they were willing to lock up in a CD. One portion was good for short-term needs, while the other was good for long-term savings.”

Is a business CD or money market account best for your business?

When deciding between a CD or money market account, business owners should ask themselves questions about their planned capital expenditures and cash cycle, says Genz.

“What are your near-, medium-, and long-term plans?” he asks. “Are you planning any expenditures where you'll need that cash? What cash do you have available? Do you feel like you're adequately self-insured, with cash in short-term accounts for emergencies? Choosing to invest in one or the other will depend on what kind of liquidity needs you have and what contingencies you’re preparing for.”

A business CD, for example, would hold your money and make it less available for a certain period, while a money market account can be an excellent place to put money that you may need soon.

Genz shares the example of a manufacturer that purchases new equipment regularly.

“They might be paying cash or putting money down and borrowing the remainder,” he says. “They should ask themselves and their financial team, ‘What capital expenditures do we have, and what's our debt strategy? Can we borrow? And if we do, does it make sense to offset the interest by putting cash in a CD or money market account and earning a return?”

Any capital that’s not in motion daily should be in a money market account, says Genz. “It makes no sense to have even short-term reserves in a checking account earning low or no interest when it could be in a money market account that earns a promotional or standard rate that is higher.”

Business CDs vs. money market accounts business accounts: How U.S. Bank can help

To make sure you’re choosing the right type of accounts, it’s a good idea to take advantage of the U.S. Bank working capital engagement sessions, says Genz.

“We call it ‘money in motion,’” he explains. “We take a detailed look at a business, asking questions about accounts receivable and accounts payable. Then we do an analysis of their answers and the volume of activity in those accounts and follow up with recommendations.

“If they have excess cash, we help them choose the account where it’s best placed to enhance their ability to operate and grow their business." These sessions are available for businesses of a certain size; to find out if yours is eligible, and to schedule a session, contact your U.S. Bank business baking partner.

Learn more about U.S. Bank business CD and money market accounts and how working capital can help your business.