How to use a business savings account to your advantage

Graphic design image of a clipboard with multiple bar graphs behind a calculator which is next to a thought bubble that has a piggy bank having coins being placed in it. With the words "A business savings (or money market!) account's usefulness has a lot to do with your ability to plan around its role in the overall financial strategy for your company." - TAB Bank

by Boyd Hunter, CFO

There are a wide range of financial responsibilities and opportunities that businesses must address to maintain stability and prepare for opportunities to grow. While considerations like investing in purchasing or leasing new equipment and upgrading facilities often result in many discussions and much planning, more foundational considerations like business savings accounts may not be frequently discussed. It's important to recognize that while the business savings account is a basic element of overall financial strategy, it's also a very important one.

From the interest rate your financial institution offers to the specific purpose or intent of money set aside in a business savings account, how you plan around and utilize this key element of your financial structure has a major influence on your company. Let's look at how to use a business savings account to your advantage.

Finding an attractive interest rate

Although it's not the only reason to choose a business savings account, the interest rate offered by your financial institution is an important factor. While no one expects to receive a significant return from a savings account, a higher rate simply means more money added to the account over time. Interest rates around 0.01 percent (0.01% APY) are especially low in terms of the payout, but aren't uncommon in the banking world, as CNBC pointed out. TAB Bank is happy to currently offer a 0.25 percent interest rate (0.25% APY) for our business savings account, providing a notably higher return.

If you're looking for an even better payout for your investment, a money market account can help you achieve that goal. With significantly higher interest rates, you can expect more in return for your deposits. Although rates change based on a variety of factors, you could see rates at or even above 1 percent - TAB's money market account interest rate as of December 20, 2018 was 1.80 percent (1.80% APY). On a practical level, money market accounts function almost exactly like checking accounts, so you won't have to worry about adapting to significantly different rules for limitations on use.

Making plans for your business savings

A business savings (or money market!) account's usefulness has a lot to do with your ability to plan around its role in the overall financial strategy for your company. Setting aside money in this account without any plans for it is better than not saving cash at all, but it's far from an ideal strategy. Having a specific function in mind for your savings account and the funds kept in is the most effective approach.

Although you can't allocate different amounts of money to various needs within the account itself, you can keep an updated plan on hand in your internal records. For example, you could set aside your estimated quarterly business taxes within the savings account, then assign roles to the funds left over. You might want to set some aside for unexpected emergencies, keep a specific amount in reserve for an upcoming major equipment purchase or otherwise have a purpose in mind for the money.

Because business savings accounts are protected by the Federal Deposit Insurance Corporation, you have strong assurance that even in the worst-case scenario, your company's money is safe. The security that comes with FDIC coverage should inform how you intend to use the money in your savings account. Start with setting aside money for the most critical, core business needs and then move onto other concerns that aren't as central to operations.

Your business savings account shouldn't be the only piece of your financial plan. Besides not being suited for frequent withdrawals and use as a payment tool - that's why you also use a business checking account - it doesn't provide the same level of return as investment options. If your company has excess cash on hand that isn't needed as part of an emergency fund nor for a specific purchase or payment, you're better off making an investment, such as a certificate of deposit or the many other options available.

Having a financial institution you can count on for information and guidance, when necessary, is another key consideration to make when choosing where to deposit your company's earnings. To learn more about what makes TAB Bank such a reliable, supportive and trustworthy banking partner, get in touch with us today.

About the Author

Boyd Hunter

Boyd is a Certified Public Accountant and received his Bachelor of Arts and Master’s degrees in Accounting from Utah State University. Prior to joining TAB Bank, he worked for eight years with Ernst &Young in that firm’s financial audit division and later became the Manager of the Salt Lake City Technology and Security Risk Services (TSRS) practice for Ernst & Young. He is a graduate of the Graduate School of Banking at the University of Wisconsin –Madison where he also achieved the Executive Leadership Certificate from the Wisconsin School of Business.<br><br>Boyd has taught upper level accounting and information systems courses at Utah State University. As CFO of TAB Bank, he participates in the strategic functions of the bank as well as oversees and directs all operations and personnel related to accounting, finance, enterprise risk management, and strategic partnerships. Boyd is active with several charity organizations including many community groups and local schools.

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