INVESTMENT ACCOUNTS » Investing Money

Why should you get a CD for your business? Well, there are some instances where it might be appropriate for you to use a certificate of deposit as an investment vehicle for your business. For instance, if your business is generating large amounts of liquid cash that you dont need on hand for operating expenses, it makes sense to put that money into an interest-generating account to make it work for you. That way, your profit is producing passive income for your business.

Many financial institutions offer business CD accounts as an option for their business banking customers. Generally they will require your business CD to be linked to an existing business account, usually a business checking account. Once your business CD is set up, its a relatively simple matter to authorize signers on your business account to transfer the money. One advantage of a business CD account is that you can authorize multiple signers to handle the deposits into your business account.

However, there are also some disadvantages to opening a business CD versus a personal CD account. Typically, business CD accounts do not have the best CD rates available, in comparison to personal CD accounts. However, smaller institutions will generally try to attract investors with the best certificate of deposit rates, because they can offer higher rates than larger institutions.

Fixed rates business CDs are the most common; however, some banks offer CDs with a bump-up feature, which will allow for a single readjustment of the CDs interest rate during the term of the CD, if interest rates go higher while the owner of the CD is in the middle of their term. Other times, CDs are tied to an index such as the stock market. Shop around and check with various institutions to get the best certificate of deposit rates available to you.

More and more banks are offering non-traditional features on the plain-vanilla CD. One of those features that you may have heard of is called a bump-up CD.

Whats a bump-up CD? Its a special kind of certificate of deposit that allows you to take advantage of rising interest rates in the middle of your CD term. For example, say you bought a two year CD when interest rates were not great. If, six months later, your bank is offering a higher interest rate, you can bump-up your rate to the higher interest rate and take advantage of the best CD rates the bank has to offer.

Most banks only allow you to take advantage of the bump-up feature once, or at most twice, during the term of the CD. So if you are considering a bump-up CD, make sure you know how many times you will be allowed to bump-up the interest rate. Some institutions may also require you to extend the term of your CD at the time you bump the interest rate. You should always check with your financial institution to see what special circumstances might apply to you.

While the bump-up feature sounds great in theory, in practice, bump-up CDs rarely offer the best CD rates to begin with. For example, a bank will often offer a two year bump-up CD at a lower interest than the comparable fixed rate two year CD. The bump-up may be a quarter point, or even half a point lower than the fixed rate of interest. In that case, you would need to see an interest rate rise of over half a percent to make up the difference and make choosing the rate bump worthwhile. So essentially, when you choose a bump-up CD, you are gambling on the rate trend and the expectation that bank rates will go up over the course of your CD term. Of course, if interest rates go down, your rate of interest will remain the same but you would get that anyway with the fixed rate CD interest.

Before you choose a bump-up CD, make sure you have a good understanding of where interest rates are headed and dont just bank on hopes for the future. You may be missing out on the best CD rates your bank has available.

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