Do You Need a High-Yield Business Savings Account?

Every small business needs a business checking account to pay bills and accept payments from clients or customers. What you may not know is that many small businesses choose to have a savings account as well. They can earn dividends or interest on their cash while still keeping it accessible when they need it.

Many financial institutions offer an array of business accounts to help owners with their business banking. You might be wondering:

Do I need a high-yield business savings account?

We can’t tell you exactly what your business needs are, but we can help you understand the benefits of having a high-yield savings account for your business and why you might want to open one. Here’s what you need to know.

What is a High-Yield Business Savings Account?

A high-yield business savings account is a type of business banking account that pays a higher-than-average interest rate or dividend rate than a traditional business savings account. It’s common for business accounts, including high-yield accounts, to have a minimum balance requirement to open an account and to earn dividends or interest.

However, the Forward Plus High-Yield Savings Account from Leaders Credit Union doesn't require a minimum opening deposit. It pays a competitive rate that’s higher than what you’d earn with a typical business bank account. Since we’re a credit union, returns are paid as dividends and not as interest.

If you’re looking for a business account that will help you earn money while keeping your money accessible, then a high-yield business savings account might be the answer.

What Are the Benefits of Having a High-Yield Savings Account for a Business?

To help you decide whether a high-yield account is the best business savings account for you, here are some benefits to consider:

Higher-Than-Average Annual Percentage Yield

One of the most significant benefits of opening a high-yield business savings account is that these accounts pay a higher annual percentage yield than most traditional savings accounts. With a competitive interest rate, you can take advantage of compound earnings for the cash you have in your account.

Competitive Fees

The next benefit to consider is that many high-yield savings accounts come with competitive fees. Fees will vary from one financial institution to another, and credit unions typically offer more affordable fees than banks.

You should keep an eye on account limitations and fee structures. Some banks and credit unions charge transaction fees even if they don’t charge a monthly fee.

Financial Liquidity

Cash flow is an issue for many small businesses and it’s essential to make sure you have enough money on hand to pay for your expenses. If you keep your extra money where it’s not accessible, you may find yourself scrambling in the event you fall short.

With a high-yield account that’s linked to your business checking account, you can easily withdraw or transfer funds whenever you need them. That means you’ll have less day-to-day worry and more peace of mind around your business banking.

Access to Online Banking

With a high-yield business savings account, you’ll get the same access to online banking features that you would with a personal savings account. That means you can check your balances, transfer money, and do anything else you would with a traditional account.

You may also get access to business resources that are provided by your credit union or bank. Many financial institutions provide blogs, guides, business calculators, and other materials that can help you with your business finances. You may also be able to avail yourself of small business services such as payroll or bookkeeping services.

What Can You Do with a High-Yield Business Savings Account?

One of the questions that we sometimes hear from small business owners is, “What can I do with a high-yield business savings account?” There are many potential options, but here are some of the most important.

#1: Grow Your Money with Compound Interest

The most obvious thing to do with a high-yield savings account for your small business is to grow your money with the power of compounding interest. Every day that you have money in your account, you’ll be earning dividends or interest to help your money grow.

#2: Fund a Small Business Emergency Account

What would happen if your business experienced a financial setback or hardship? If you don’t have enough cash on hand to pay your expenses, you could run into serious money trouble or even risk losing your business. That’s where an emergency fund comes in handy.

We suggest that every small business have a minimum of six months’ worth of overhead expenses at hand in an emergency account. Overhead expenses may include your rent or mortgage payment, employee payroll, utilities, services, loan or lease payments, and money to pay for supplies, raw materials, and so on.

#3: Pay for Unexpected Expenses

Your emergency fund should have enough money to cover your regular expenses, but it can also come in handy when unexpected expenses come your way. We’re talking about things like the breakdown of an essential piece of business equipment or an unanticipated price increase from a major supplier.

With a high-yield business savings account, you can be sure that you have enough cash on hand to meet any unanticipated expenses that comes your way. In other words, you won’t need to worry about racking up a credit card balance or needing a loan to meet your cash flow needs.

#4: Expand Your Business

There’s no way to predict when a business opportunity will arise. You might land an account with a big buyer or have the chance to collaborate with another company. Either way, you’ll need enough money on hand to be able to take advantage of the opportunity quickly.

With money in a high-yield savings account, you’ll be able to access your cash quickly for any opportune moments that may arrive. If you need to wait to liquidate your assets, you might miss out on chances to see your business grow.

Can Any Business Open a High-Yield Savings Account?

You may be wondering if any business can open a high-yield savings account or if there are requirements to do so. 

In theory, any business can open a high-yield savings account, but that doesn’t mean there aren’t requirements. Most financial institutions that offer high-yield savings accounts, for businesses or individuals, have requirements that may include the following:

• A minimum opening deposit
• A minimum balance requirement to earn dividends or interest
• Tiered balance requirements to earn the highest dividends

Before you open a business high-yield savings account, you should make sure that you understand the requirements as they relate to opening an account and earning dividends or interest. 

Are There Any Risks Associated with High-Yield Business Savings Accounts?

It’s not risky to have a high-yield business savings account, but there are some potential issues you should know about and consider before opening this type of account.

The first thing to be aware of is that while a high-yield savings account pays a higher APY than a traditional savings account, you won’t earn as much money as you would if you invested some of your business savings. If you’re looking for rapid growth, you may want to invest some of your money in higher-yield investment vehicles.

The second thing to know is that you’ll need to remain aware of balance thresholds and requirements to avoid missing out on dividend payments or interest. 

Make sure to read the find print and that you understand how dividend or interest rates are calculated. In most cases, the interest rate on high-yield savings accounts is variable, which means it will fluctuate according to market and economic conditions.

It’s not uncommon for high-yield savings accounts to come with account limitations. For example, there may be a monthly cap on withdrawals or transfers. Going over the caps may result in transaction fees that can cost you money.

Finally, while the money in your high-yield savings account is liquid, you won’t have a debit card or checks the way you would with a business checking account. That means you’ll need to transfer money into your checking account if you want to use it to pay for your business expenses.

Fast-Track Your Business Savings with Leaders Credit Union

Putting your business savings into a high-yield savings account can help your company weather financial storms and take advantage of the business opportunities that come your way. The information we’ve included here can help you decide if a high-yield savings account is a good addition to your business bank accounts.

Do you want a high-yield business savings account that pays a competitive dividend rate and comes with access to resources to help you turn your business goals into realities? Leaders Credit Union is here to help! Read about our business savings accounts and join today.