High-yield business checking accounts work like standard interest-bearing checking accounts, but the annual percentage yield (APY) is higher. Interest rates go up and down, so the exact rate on your account will vary. Some online-only business checking accounts may offer as much as 50x the national average interest rate. That interest income can help offset rising costs and low investment returns.
How do high-yield checking accounts work?
The qualification criteria for a high-yield business checking account could include maintaining a minimum monthly balance, executing a certain number of transactions per month, and using an automated bill pay feature. The bank might also require one direct deposit/ACH payment per month and an agreement to receive e-statements instead of paper statements.
Once qualified, the account holder can receive the benefit of higher interest payouts each month. The rate may be variable, so what you receive this month may not be the same as it is next month. The exact rate is based on the federal funds rate, which is what banks pay to other banks when they borrow. The federal funds rate is controlled by the Federal Reserve Bank.
High-yield business checking accounts can help small businesses compensate for higher prices during inflationary periods. The Federal Reserve Bank will typically increase interest rates when inflation is high, which causes the APY on deposit accounts to increase reciprocally. That won’t lower rising prices for materials and supplies, but it will help to cover them.
Are high-yield checking accounts safe for my business?
In the United States, your bank account should be insured for up to $250,000 per account holder through the Federal Deposit Insurance Corporation (FDIC). When opening a high-yield checking account, it’s important to look for the FDIC name or logo.
There’s no danger of losing your money in a business checking account with high interest if you open it at a legitimate bank or credit union. The only downside is that high-yield accounts may have minimum balance requirements, which can tie up your funds. Withdrawing or spending them could cause your business to lose out on those high interest payments each month.
A business checking account with activity requirements might make more sense for your business if your high-yield account is also your primary operating account.
What are the benefits of high-yield business checking?
Many small businesses frequently move money around to take advantage of competitive interest rates or investment returns on other financial products. That’s not necessary with a high-yield business checking account. The S&P 500 and Nasdaq are both showing double-digit losses in 2022. A high-yield business checking account could earn 30 to 50 times the national average interest rate.
Another benefit to interest income is that it’s recorded on your income statement as non-operating income. That increases net revenue without adding any costs, which directly affects retained earnings and shareholder equity. Add that to the cash on hand required to earn the interest income and it puts your company in a stronger financial position for investors.
How do I know if a high-yield account is right for my business?
Opening a high-yield business checking account is a great fit for your business if you’re confident you’ll qualify to earn interest most months. Be sure you understand any potential activity requirements before applying, as well as other benefits like no minimum balance requirements and no monthly fees.
The best business checking accounts offer all that along with a high interest rate.
