Business certificates of deposit are time deposits issued by a bank. The bank restricts account holder(s) from withdrawing money before the maturity of the certificates. Although you can withdraw money before the maturity of your certificate of deposit you will be required to pay a penalty for it. Business CDs have a maturity date, fixed interest rate and can be issued in practically any denomination.
Business certificates of deposits are a great way to earn money on extra cash lying idle in your business. Although business CDs pay a higher interest rate than most money market accounts, their downside is that your money will be locked up for a predetermined time period. It is a good idea to keep a safety net for both personal and business emergencies. You may end up losing part of your investment rather than earning interest on it in case you have to withdraw all or part of your money in case of an emergency. It is a good idea to clearly ask the bank representative when your CD matures because most people confuse call features with maturity. Liquid CDs, a new type of business CD introduced in the market allowed you to invest your money at a higher interest rate with the option of taking out the money and reinvesting it in case the interest goes up.
Steps for Buying Business CDs
1. Compare Interest Rates Offered by Different Banks – The advent of internet has made comparison shopping easier than ever. Experts recommend comparing interest rates offered by different banks on business certificates of deposit.
2. Buy Business CDs from Online Banks – Online banks offer far more attractive deals than brick and mortar ones. This is because they have much lower overhead costs in comparison with brick and mortar banks. Thus, they pass part of their savings to customers through higher interest rates.
3. Buy Customized Business CDs – Customized business CDs are always a better alternative in comparison with the one fits all ones. You can ask your bank’s representative to issue a business CD that is most suitable for your business needs. For example, if you do not want to lock up your idle cash for a year you can buy a customized business CD with maturity of one month or less.
4. Buy Business CDs from Your Current Bank – You should buy business CDs from your current bank since its representatives would be aware and sensitive of your business’s distinct needs.
5. Consider Buying Business CDs from Non-profit Credit Unions – Non-profit credit unions usually offer higher interest rates than banks. Thus, it may be a good idea to buy your business CDs from a Non-profit Credit Union. However, make sure you choose a non-profit credit union approved by the National Credit Union Administration (NCUA), a federal agency. This is because business CDs of non-profit credit union not approved by National Credit Union Administration have a higher risk than their conventional counterparts.
6. Create a Ladder of Business CDs – Creating a ladder of business CDs will allow you to diversify risk and increase returns at the same time. Thus, experts recommend buying business CDs having different interest rates and different maturities at once. However, you may need to consult a professional broker before creating a ladder of business CDs.