What Is a Business CD?

A business CD, or Certificate of Deposit, is a low-risk way to help you grow your business savings. Like a personal CD, a business CD is an account that allows your business to save money at a fixed rate of interest for a fixed length of time.

Because the owner of a CD agrees to keep the money deposited for a certain term, the financial institution typically pays a higher rate of interest for a CD than for a regular business savings account or money market account.


Can a Business Have a Certificate of Deposit?

Yes, a business can have a Certificate of Deposit account. Businesses typically keep any reserve funds in a savings or money market account. However, for business owners who'd like to earn extra interest and know they won't need access to their funds in the near future, a business CD can be a valuable alternative.


How Do Business CDs Work?

Generally, a business CD works like a personal CD: The account pays a fixed rate of interest over a set "term," or period of time. When the term is completed, the CD "matures," which means it stops earning interest. At that point, you can cash out the CD account or renew it for a new term at the current interest rate.

City National Bank offers convenient automatic renewal for business CD owners. That means if you choose not to cash out your business CD when it matures, the CD will automatically renew for the same period selected, with a grace period of up to 10 days.


Minimum Deposits for CDs

Most business CDs require a minimum deposit. The amount of the minimum deposit may vary based on the term you select.

To see the most recent rates, please visit City National's business CD page.


What are the Terms of a Business CD?

The terms of a business CD will vary, but in general there are short-term business CDs which run a few weeks or months, and longer-term business CDs which may run one to five years.

A CD's interest rate depends on the current interest rate environment as well as the term. Longer-term CDs typically pay a higher interest rate than business CDs with shorter terms.


CD Early Withdrawal Penalty

Financial institutions pay higher interest rates for CDs because their owners agree to keep their money deposited for an agreed-upon period of time. Most CDs provide options for owners to cash out early if they need to, but not without a penalty. If you choose to withdraw any funds from your business CD before the set maturity date, you'll likely be charged a penalty fee for early withdrawal.

The early withdrawal penalty for a business CD varies depending on your financial institution. Typically, the penalty fees are tied to the CD term; for example, an early withdrawal fee for a six-month CD may equal three months of interest, and an early withdrawal fee for a five-year CD may equal 12 months of interest.


Are Business CDs FDIC Insured?

As long as your business CD is held at a bank or financial institution that is a member of a federal deposit insurance agency, your account is insured by the federal government. The Federal Deposit Insurance Corporation (FDIC) provides standard deposit insurance coverage up to $250,000 per depositor, per FDIC-insured bank, per ownership category. Your business CD may be covered up to $250,000 at one institution, depending on other deposits you may have at the same institution.


When Should I Consider a Business CD?

If your business has financial reserves that you won't need to use for several months or years, and if you want to earn higher interest returns, it may be a good time to consider opening a business CD.

Keep in mind that when you choose to open a business CD, you must be willing to sacrifice having the liquidity of the reserve funds you plan to deposit. You'll need to make sure you have other reserve funds available for unexpected expenses, or that you will be willing to pay a penalty if you have to withdraw the money from your CD before it reaches maturity.


Which Should I Choose: A Business CD or Money Market Account?

A business CD and a money market account — a type of higher-interest savings account — can each provide your business with a secure place to keep reserve funds, while earning interest. Though money market accounts usually have lower interest rates than CDs, they enable owners to access funds as needed. They generally require larger minimum balances than regular savings accounts.

If you will need regular access to your business funds, a money market account may be the best option because you can make withdrawals at any time.

If you will not need to access your reserve funds for a set period of time, a business CD may be your best option because it will pay you a higher interest rate than a money market account.

To help make an informed decision, contact our business banking experts today to learn about your options.

This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.