Every business needs a place to deposit savings for potential liabilities, upcoming tax payments, and more.
When you’re choosing a destination for your excess cash, a business savings account may seem like the obvious choice — but a business high-yield savings account (HYSA) could be an even better option.
Although business HYSAs can be hard to find, your account balance will earn higher interest rates than it would in a regular business savings account — in some cases as high as 4% APY.
A business HYSA is a high-yield savings account available to businesses only. These accounts pay higher interest rates than regular business savings accounts, which often reward you with as little as 0.01% APY.
Business HYSAs come with several benefits. Like other business savings accounts, business HYSAs give you a risk-free place to store your excess cash. They also allow you to separate your personal savings from your business savings. And when linked to a checking account, they can help you avoid overdrafting. However, the competitive interest rates on business HYSAs are an added incentive.
How much more interest can you earn with a business HYSA versus a regular business savings account? Most business HYSAs currently offer APYs between 3% and 4%. At those rates, if you keep $50,000 in an HYSA with daily compounding interest for one year, you could earn somewhere in the range of $1,523 to $2,040 in interest.
There aren’t many major banks that offer business HYSAs, but Live Oak Bank, Stearns Bank, and Amplify Credit Union are among a handful of financial institutions that currently offer accounts with above 3% APY.
Unlike consumer HYSAs, you have to run a business in order to open a business HYSA.
To qualify for one of these accounts, you’ll need to provide business-related information and documents to the bank. The specific documents depend on your business structure, but at minimum, they usually include:
Additionally, some business HYSAs have features designed specifically to support businesses versus individuals. For example, some accounts allow business owners to grant access to certain employees or financial officers, with the ability to create role-based permissions for viewing, transferring, or managing funds. Others are designed to easily sync with accounting software such as QuickBooks. And since businesses often deal with a higher volume of transactions, some business HYSAs come with higher limits on withdrawals and transfers.
Business HYSAs are not one-size-fits-all. Yes, you’ll want to find an account with a competitive interest rate, but it’s important to evaluate other features before deciding whether a particular account is a good fit.
Here’s a checklist of what to look for to ensure a business HYSA will best serve your needs:
Rates: Interest rates are competitive. If there are rate tiers, your average deposit balance will easily qualify for a high rate.
Fees: The account either has no monthly maintenance fees, or you can easily qualify to have them waived. The fees are competitive for specific services you plan to use, such as domestic and international wires.
Balance requirements: If there is a minimum opening deposit requirement and/or a minimum average daily balance requirement, you can easily meet them.
Deposit insurance: The bank offers FDIC or NCUA insurance to cover deposits up to the federal maximum of $250,000.
Accessibility: You can easily access the banking services you need, whether through a mobile app, local ATMs, or a physical bank branch.
It’s also worth noting that some banks review your ChexSystems report to determine if you qualify for a business account. These reports show your history of managing personal bank accounts, including red flags like overdrafts and bounced checks. If you have negative information in your reports, you may need to find a bank that doesn’t use ChexSystems to approve applications.
Yes, if you’re a sole proprietor, you can apply for business HYSAs or other types of business bank accounts.
Just like HYSAs for individuals, the interest you earn on a business HYSA is taxable. Your bank will provide you with a Form 1099-INT each year to show you how much interest you need to report on your tax return.
Read more: How to avoid taxes on savings account interest
Some banks and credit unions do not have deposit insurance for business accounts, including business HYSAs. Before applying for a business bank account, be sure to check the financial institution’s website to see what insurance is provided.
