SMB Savings Accounts: What you need to know
Rates, restrictions, banks vs credit unions, and more.
You are in business to make money.
We all know it but once your small business is up and running it’s easy to lose track of the million little expenses and profit opportunities that will ultimately determine your success.
Business savings accounts are one of those little profit opportunities.
With over 7,000 banks in the United States and another 6,000 credit unions, figuring out where to park your sacred retained earnings is actually a pretty daunting activity. Most will just settle for a large bank. Some will stick to the small bank or credit union where they hold their personal savings. And the small minority will take the time to find the gems that pay high rates & have low fees.
You want to be the small minority in this case.
Times are tough right now and every penny counts.
That being said, you’ve problem been underpaid by your current business savings account for years.
The top available rate on business savings accounts (across banks and credit unions) as of 5.26.2020 is 2.00%.
The lowest available rate will always be 0.00% and banks/credit unions will happily oblige for you to pay this. If you’re earning this now, or aren’t sure what you are earning (so it’s likely 0%), it’s ok. Switching is easy.
This 2% rate is fantastic for right now (it wasn’t that great as of 24 months ago but the past is the past) and actually higher than a 6-year CD (1.75% highest)and a 30-year US Treasury bond (1.50%). Long-story-short, this is your best risk-free option available right now for your idle funds.
There are a few rules to play when it comes to a business savings account but luckily they are pretty much the same rules as for your personal savings account.
Minimum balance requirements are common for business savings & business money market deposit opening and to avoid on-going “maintenance fees”. Beware the accounts with these fees as they can easily add up and remove any benefit of the “high rates” quickly.
No more 6 transaction outflow limits! (for now) The COVID era has been crushing for our small businesses by one good thing that has come of it is the suspension (and possible elimination) of the banking law that limits your withdrawals to 6 from your business savings/MMDA account. That being said, just like before, you can still be hit with fees if you go over the limit (even though it’s no longer really a limit). I know this doesn’t make sense but banks will look for any way to keep taking money from you if possible so look out for this scam and check with your bank to make sure they no longer charge fees.
Banks vs Credit Unions
In 2020 and for the purposes of business savings accounts, there is little difference.
Your funds are insured up to $250,000 by either the FDIC or the NCUA.
Credit unions can have obscure requirements to become a “member” such geographic location requirements, organization affiliations (such as being a school teacher or member of the Army/Navy), or a specific dollar contribution to a particular cause. This “contribution” can be seen as the cost to use the credit union. Banks typically only have geographic requirements such as in a particular state or close enough to a branch where you can open the account in person (mostly only the older small-town banks).
Customer service is hit or miss at either option although credit unions should theoretically provide better service to their members.
Interest rates on deposits vary at both banks and credit unions. If you’re looking for the highest available rate, you will need to review all options at both.
Credit unions almost always have lower, or fewer, fees than banks. This is primarily due to the fact they are, at least theoretically, created to help their members as they are non-profit institutions (they don’t pay taxes).
Websites and apps can be terrible or adequate at either but again is very institution dependent. Banks and credit unions are decades behind the curve when it comes to technology so you can only really expect the basics.
In the last 20 years, we have seen incredible growth in the options for your personal savings. Think Ally, Sofi, PersonalCapital, WealthFront, Acorns, Marcus, etc. This hasn’t been the case for business savings accounts at banks and credit unions.
The only financial technology company touching business savings right now is Froogal.us. They give your business access to pretty much every bank & credit union with just a few clicks so you don’t ever have to go through the process of switching/stressing again. Froogal also is built in a group format so your entire small business team can benefit from the higher rates together.
As the economy slows during 2020, credit unions are likely to offer higher rates compared with banks for the next 6–12 months. Not paying taxes is a huge advantage.
Credit unions can also provide better loan rates for members compared with most banks. That being said, there are a lot of great non-bank lenders out there for just about every type of loan so certainly review all options before committing to any particular institution.
Banks have also lost their way when it comes to small businesses over the last 20 years (I cannot attest to any further back but I would assume so). You're simply not worth their time and it shows.
Rather than waiting for this to change, which it won’t, do yourself a favor and switch to a high rate paying option today and start earning as much money as possible on your business savings. This will be the easiest extra thousand bucks you will make this year and should only take a few minutes to do.