What are business money market accounts?

Your business likely manages its cash flow with a traditional checking and savings account. While those two types of accounts build the foundation for money management, there’s a smarter way to save for and facilitate big purchases: a money market account for business.

What are money market accounts and how do they work?

A blending of a checking and savings account features, a money market account is an interest-bearing account with check-writing and debit card privileges. This type of account pays higher returns than regular savings accounts, with fluctuating interest rates based on market conditions.

“Money market accounts can be a good choice for businesses with short- to medium-term savings needs,” says Taylor Genz, Vice President of Business Banking for U.S. Bank. “As loan rates go up, deposit rates go up. Recently, our money market accounts have seen an increase in interest rates.”

Can a business open a money market account?

Businesses can open money market accounts, which serve as an advantageous tool for managing their financial reserves.

These accounts offer businesses the benefit of earning higher interest rates compared to traditional savings accounts, making them an effective choice for earning returns on surplus cash.

Additionally, they provide the flexibility of relatively easy access to funds, which can be crucial for short-term business needs or unexpected expenses.

How are business money market accounts different from checking and savings accounts?

Business money market accounts are similar to checking accounts in many ways. Here are a few:

• You can make unlimited deposits.
• You can withdraw funds immediately, unlike with other savings tools, such as certificates of deposit (CDs), which require the money to remain in the account for a specific term length.
• The account comes with checks and a debit card that allow you to make purchases directly with vendors without having to move money between accounts.

Business money market accounts also have similarities to savings accounts. For instance, balances earn interest that is compounded daily.

Money market accounts used to have withdrawal limits like savings accounts, but these rules have changed. A recent Federal Reserve rule change allows account holders to make unlimited telephone, electronic and wire transfers, check or debit payments to third parties, overdraft protection, and ACH transactions. The new rules make using a business money market account more possible for everyday needs.

Money market accounts are also insured by the Federal Deposit Insurance Corporation for up to $250,000. This protection makes accounts safer than other types of investment, such as stocks, which aren’t FDIC-insured.

How to open a business money market account

To open a money market account for your business, you’ll need a minimum opening deposit, which can be as low as $100. Rates often fluctuate based on the balance with higher balances earning higher rates of interest.

In some cases, money market accounts will incur a monthly maintenance fee. However, banks usually offer criteria for waiving the charge, such as maintaining a minimum balance or holding other accounts with their institution.
 

Pros and cons of a business money market account

Is a money market account right for your business?

Many types of businesses can benefit from having a business money market account, says Genz. For example, a company with a conservative business model, low expenditures and substantial receivables could use a money market account for its retained earnings.

“Money market accounts are good for creating a short-term emergency fund,” Genz says. “They’re also good for businesses with strong cash flow. For example, someone with a few million dollars could earn thousands of dollars in interest each year.”

However, it's essential to consider the balances needed to earn the best rate or avoid monthly fees. Business money market accounts might not be the best choice for companies that can’t consistently meet the requirements.

“If a business has a low or tight cashflow, a money market account could turn out to be a detriment to the business,” says Genz. “They may not have the excess cash to put into the account necessary to avoid fees. In this case, the interest earned may not cover the costs.”

Our approach to money management

U.S. Bank works to support its business customers and make sure they are choosing the best banking products for their needs. One helpful service is our working capital engagement sessions, which are available to businesses of a certain size. Bankers will review a business’s finances, looking for areas where they can maximize their funds, says Genz.

“Every bank has money market accounts with competitive rates,” he says. “Our differentiator is to provide a holistic, consultative approach. We add value with working capital engagement. Often, we find additional ways to save money, such as reducing fees in areas of their business, so our customers can build their money market account balance more quickly.”

To find out if your business qualifies for working capital engagement support, and to schedule a session, contact your U.S. Bank business baking partner.

Money market accounts can be a good part of your financial wellness plan. Start by comparing rates for U.S. Bank Business Money Market Accounts today.