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If you’re looking to open a bank account for your business, you may have come across something unfamiliar: a business money market account. What is a business money market account, you ask? Why is it better than a checking account? What limitations does it have?A business money market account, which we’ll define shortly, can be a useful option for certain businesses. Before you decide if a money market account is a good fit for your business, it is helpful to first understand the pros and cons and how they work.
Defining a Money Market AccountOur money market account definition is fairly simple: it’s a hybrid of a checking and savings account for your business. While it earns high interest (sometimes higher than savings accounts), it also has some of the functionality of a checking account, like a debit card and checks.
How a Money Market Account WorksMoney market accounts function similarly to a savings account, but have some characteristics of a checking account as well. Money market accounts generally earn more competitive interest rates than traditional savings accounts, while offering easy access to the money in the form of checks, a debit card, or both—depending on the financial institution. There may be some limitations on the number of times money can be withdrawn from the account and some accounts may have minimum balance requirements.
Pros and Cons of a Money Market Account for BusinessWhen it comes to a high yield money market account for your business, there are both benefits and drawbacks to be aware of.
Money Market Account AdvantagesBusinesses appreciate the fact that their income can earn interest as it sits in the bank. Many money market accounts earn as much if not more interest than business savings accounts. If you have large sums of money in your account, why not help it grow?And because deposits in money market accounts are insured, up to $250,000, by the Federal Deposit Insurance Corp. (if yours is through a bank) and the National Credit Union Administration (if you opened it at a credit union), your money up to that amount is safe even if the bank or credit union closes down.Unlike a savings account, a money market account makes it easy to access your money. You’ll typically get a debit card and checks that can be used to pay for business expenses.
Drawbacks of Money Market AccountsIf you need to make a high number of transactions from your business bank account each month, a money market account might not be for you, since you are often limited in how many transactions you can make. Because it isn’t a checking account, you are limited by law to no more than six transactions a month, including checks, debit card swipes, or online transfers.And while this isn’t the case with every financial institution, you may be required to maintain a minimum daily balance to keep your account. Some banks may have a relatively low minimum balance requirement, for example, a SunTrust business account only requires a $500 minimum balance.
Money Market Account RatesBusiness money market account rates vary from one financial institution to another, but generally they are competitive when compared with rates on traditional savings accounts. Some accounts may offer different interest rates depending on your average balance. If this is the case for accounts you are evaluating, consider how much you plan to keep in your account before opening a money market account. Some accounts may also incur fees if the balance drops below a certain minimum threshold, so read the policies on each account you are considering carefully.Rates may vary based on financial institution, so it may be worth shopping around.
Choosing the Right Money Market Account for Your BusinessJust like any financial decision, you need to consider what’s important to you before choosing the best business money market account for your company. The following questions could help you determine if a money market account is the right fit for your business.How many transactions do you think you will need to make a month? If it’s over six, you may be better off opening an interest bearing checking account. Business checking accounts function similarly to personal checking accounts, allowing account holders to easily make transactions. While some business checking accounts may earn interest, they may also have fees associated with them, so it’s worth evaluating the fine print on the account. Some business checking accounts may also have a minimum balance requirement or limit the number of deposits that can be made each month.Do you already have business or personal accounts with a bank? You may get a better interest rate on a small business money market account if you already have a relationship with a bank. A US Bank business account, for example, can earn a bonus rate if you open a business checking package in addition to your money market account.How much money do you anticipate leaving in the account, on average? This may be an important factor if there are minimum balances on the account(s) you are looking at. For example, if you have money that will sit untouched, you might qualify for one of the accounts that offers higher interest for higher balances. Do you prefer visiting a physical branch to do your banking, or are you okay with an online-only account?If you want the ability to visit an in-person location, an online-only account may not be the right fit for you. Plus, there may be other factors you want to consider, like proximity of a branch from your office, whether the bank offers other business finance tools you need, or even the reputation of the bank or financial institution. You might even ask friends or colleagues for recommendations.
Opening a Business Money Market AccountOnce you’ve selected the financial institution and money market account, it shouldn’t take much for you to open your new business money market account. While each bank may have a slightly different application process, either online or in person, you will in general need to bring:
Once approved, account holders will generally be given a debit card (it may be possible to add authorized users and get cards for them as well) and checks, as well as online access to the account.Remember that rule about not making more than six transactions per month: if you go over, you could be charged a penalty fee, and if it happens continually, your bank could close your account or transition it to a checking account.
- Employer Identification Number (EIN) or Social Security number if you are a sole proprietor
- Articles of Incorporation or Articles of Organization paperwork if your business is a corporation or LLC
- A government-issued photo identification for you and anyone else who needs to have access to the account
- Check or account number to fund your money market account
Is a Business Money Market Account Right for You?If you have large sums of money that you can leave in your account to earn interest, and if you don’t need to make more than six transactions a month, a money market account could be an option to consider.On the other hand, if you have a lower balance or make more transactions, an interest bearing checking account or a business savings account may be a more suitable option. Taking the time to determine the best way to maximize your revenue now could help you build a healthy nest egg in the future.
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About the Author
Susan Guillory is the President of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.