Business Money Market vs CD: Which is better?

A business money market account (MMA) and business certificate of deposit (CD) are interest-bearing accounts that allow you to earn money from your company’s financial reserves. They, along with business savings accounts, earn less interest than investment accounts because they are considered low risk. Both are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per account holder.

MMAs allow you to deposit and withdraw money at any time, though many still limit you to six free transactions a month even though the Federal Reserve Board removed that requirement. Meanwhile, CDs require you to deposit money into an account and leave it for a set period of time. Withdrawing your money before the CD matures may result in early withdrawal penalties.

If you want to open a business money market account or CD, First Internet Bank is a great choice. Offers a business money market account that earns between 2.53% Annual Percentage Yield (APY) and 3.87% APY. Business CDs earn between 1.51% APY and 4.39% APY, depending on the length of the CD. Visit the First Internet Bank website for more information.

Comparison of Business Money Market Accounts, Business Certificates of Deposit, and Business Savings Accounts

There are three types of business bank accounts that allow you to earn interest on business reserve funds. In addition to commercial MMA and CDs, you may choose to open a high-yield commercial savings account. The following table compares some of the differences between the three account types.

When to use a business money market account

When comparing a commercial CD with an MMA, choose the latter when:

  • You need easy access to your money
  • Plan to deposit and withdraw money from your account regularly
  • You don’t mind getting lower interest returns in exchange for liquidity
  • You often have large unplanned expenses that may require the use of your reserve funds

Business Money Market Account Pros and Cons

When to use a commercial CD

When comparing a commercial CD to an MMA, choose the former when:

  • Have financial reserves that you can leave intact for several months or years.
  • They want higher interest returns and are willing to sacrifice the liquidity of reserve funds
  • Are you okay with paying a potential penalty if you have to withdraw the money early?
  • Have other reserve funds in a savings or MMA account that can be used for unexpected expenses

Advantages and Disadvantages of Commercial CDs

When to consider an alternative

There may be times when a business savings account or business checking account is a better option. If you have smaller reserve amounts that you may need more regular access to, then a business savings account may be a good option. It will have the lowest interest earnings of the three types of savings accounts, but often allows you the most regular access to your money without penalty.

If you need constant access to your funds with unlimited transactions, then an interest-earning business checking account may be the best option. You won’t have to worry about paying any fees for exceeding transaction limits and you can still earn some interest on your business finances. Before you open a new account, check out our guide on how to open a business bank account.

Bluevine is a great choice for an interest-bearing business checking account. It is largely a no-fee account that earns 2.0% APY on all balances of $100,000 or less. Visit the Bluevine website for more information.

Frequently Asked Questions (FAQs)

What is a business money market account?

A business MMA is an interest-bearing business bank account that generally earns interest at a higher rate than business savings accounts. However, MMAs earn less interest than investment accounts because they are considered low risk.

A commercial MMA can be funded through an automated clearing house (ACH) transfer, check or cash deposit, or incoming wire transfer. Once the money is in your account, you can leave it to collect interest, withdraw it, or transfer it to another account.

Which is better: CDs or money market accounts?

Both CDs and money market accounts (MMAs) are great ways for your business to earn interest on your reserve funds. If you need regular access to your funds, a commercial MMA allows you that access. If you don’t need your reserves for a certain period of time, then a commercial CD is the best option because it will earn you a higher interest rate than a commercial MMA.

Why do companies use money markets?

Businesses use money market accounts to earn interest on reserve funds that are not needed for the day-to-day operations of a business. While this type of account doesn’t earn as much interest as a business CD, it allows you constant access to your funds while earning interest without the early withdrawal penalties typical of CDs.

Bottom line

A business money market account or business certificate of deposit can help your business grow by earning interest on your company’s reserve finances. If you are looking to earn the maximum amount of interest and are not concerned about the liquidity of the reserve, a business CD is the best option. If you don’t mind earning less interest so you have access to withdraw and deposit funds into your account regularly, a business money market account makes the most sense.

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