Skip to main content
_FB_2018-Icons-finalized-cleaned-up_new_FB_2018-Icons-finalized-cleaned-up_newGroup 9
Scroll to top

The Unsung Hero of the Business Savings Plan

As a business owner, you have a number of options in which to invest your retained earnings. One example is the certificate of deposit, or CD.

Befitting its name, the CD is a financial instrument that allows you to make a deposit for a fixed period of time (for example, 24 months) and draw interest at a greater rate than the typical savings account.

Why Should You Use Certificates of Deposit?

First, the Federal Deposit Insurance Corporation (FDIC) insures CDs for up to a maximum value of $250,000, meaning that CDs for either $250,000 or less are close to being risk-free.

Second, as mentioned, CDs tend to earn higher interest rates than savings accounts, though the exact interest rates are set based on factors such as:

  • The size of the deposit
  • The length of the deposit
  • The prevailing interest rates at the time of the deposit

Finally, the CD is similar to a savings account in that you can withdraw the deposited cash at any time, so long as you’re prepared to face the penalties. These range from withdrawal charges to a partial loss of the interest earned.

How to Use Certificates of Deposit

The CD is the perfect financial instrument if you’re interested in protecting the value of your savings but are unsatisfied with the small sums of interest paid out on savings accounts.

For example, if you plan to purchase a large equipment or technology upgrade in the future, then investing your current savings into CDs is a method that puts the funds to greater use during the waiting period without risk.

While you could potentially earn more by investing in riskier assets such as stocks or bonds, this leaves the funds vulnerable to the market and can also result in disruptive losses.

The CD is also useful as a means of saving cash in case of unexpected cash flow emergencies. Prevailing wisdom suggests that businesses should have sufficient cash and cash equivalents to cover between 3 to 6 months of their operating expenses.

However, this is can be problematic if the cash and cash equivalents are sitting in savings accounts when much more lucrative options are available. It might be better to have an operating account with sufficient cash and cash equivalents to cover 1 month’s operating expenses, with between 3 to 6 months’ operating expenses deposited in CDs.

This way, you can still cover unexpected emergencies while putting your savings to excellent use.

Trending Topics

Best Business Checking Account – Lillington, NC

If you are a business owner, you know how important proper finance management is to running a successful business. Separating your business bank account from your personal bank account can ensure accurate bookkeeping. If...

Get the Best Checking Accounts from First Bank in Wilmington, NC

If you are looking for some of the best checking accounts in Wilmington, NC, you are in the right place. With several convenient locations in Wilmington, each offering six types of checking accounts,...

Best Small Business Bank – Albemarle, NC

If you’re looking for the best small business bank in Albemarle, NC—the search stops with First Bank. As a local bank, First Bank has a reputation for being an instrumental part of small businesses. Our...

What is Required to Open a Business Checking Account?

It’s standard for a business to have a business checking account. After all, a business needs to handle cash and pay bills. If you’re just starting a business, or even if you’re moving your business bank...

How Much Should You Have In Savings at Age 25?

If you’re wondering how much you should have in savings by the time you’re 25, you’re already on the right track. At an age where financial independence becomes increasingly more important, how much you...

Stress-Free Student Checking Account – Asheville, NC

First Bank’s stress-free student checking account is suited for the hectic lifestyle of a college student. First Bank has many locations around Asheville, NC, to help students easily manage their banking needs....

5 Money Saving Tips for Young Adults

When you’re young, saving money can seem like an impossible task. It’s easy to see your paycheck as a way to get by month to month and not a way to prepare for the future and save for financial...

What Do I Need to Open a Checking Account?

What do you need to open a checking account? It can vary a little from bank to bank but there are typically some fundamental necessities needed to open a checking account. First Bank has five levels of checking accounts,...

Learn How Much You Should Be Saving Each Year

Wondering how much you should be saving each year? Many specialists believe in the 50/20/30 budget: 50% is spent on necessary expenses (e.g. credit card bills, rent), 20% of your income is put into...

FHA Loans 101: 3 Major Requirements

If you have a strong understanding of the FHA loan requirements, you’ll experience a quicker and smoother loan application process. FHA loans provide homebuyers of all income levels the opportunity to purchase a home...