What Is a Business Money Market Account?

Here's how this investment account can increase cash flow for small business owners.

Banking is a competitive industry with various account options available for the small-business owner. The No. 1 goal in business is to make a profit, and the type of bank account you select can either help or hinder reaching that goal. A business money market account is a financial tool that can assist business owners in maximizing their cash flow.

In previous decades, interest rates and returns on business money market accounts were higher than they are today. Currently, interest rates are expected to be on the rise — and business owners should do what they can to benefit from those rising interest rates. Learn how a money market account can increase cash flow for your small business and bolster returns on working capital — and help you meet that No. 1 business goal of making a profit.

Related: Everything You Need to Know About Business Credit Cards

What Is a Money Market Account?

money market account is a hybrid checking and savings account. Money market accounts are available for individuals and might be referred to as traditional money market accounts. But money market accounts are also available for businesses, and a business money market account can be a valuable tool for an entrepreneur or small business.

Here are some distinct features of a money market account:

  • Typically earns more interest than an interest-bearing checking account
  • Might have some restrictions, such as number of transactions permitted per month
  • Allows check writing and usually provides an accompanying debit card
  • Insured by the Federal Deposit Insurance Corporation — up to $250,000 per account

A money market account is funded by the bank’s depositors. The benefits and restrictions on a particular money market account vary from bank to bank.

What Is the Difference Between a Money Market Account and a Money Market Mutual Fund?

A business money market account is not to be confused with a brokerage money market mutual fund. Most money market mutual funds are used as a holding account until used for investing in financial assets such as stock and bond funds.

To make the distinction from a money market account clearer, here are some key features of a money market mutual fund:

  • Offered through your investment company — not a bank
  • Comprised of short-term commercial paper, which is an unsecured, short-term debt instrument
  • Aren’t insured
  • Might offer slightly higher interest payments than a money market account

What Are the Benefits of a Business Money Market Account?

As a small-business owner, you need a separate business bank account to protect your personal assets from legal liability. The business money market account is an important accompaniment to your business’s overall financial toolkit.

Using a business money market account with a higher interest rate boosts your working capital interest income. As a business owner, you can keep the majority of your working capital in the money market fund and transfer funds as needed into your business checking account to maximize your interest income.

The business money market account can include a credit or debit card and helps organize and track your business transactions. The transactions within the account can then be tallied according to category and imported into a spreadsheet or accounting software program to provide a clear financial view of your business.

The business money market account is specifically designed for small businesses and offers a number of benefits, including:

  • Higher interest rates than those of a typical business savings account
  • FDIC insurance up to $250,000 per account
  • More effective cash-flow management when linked to all other business accounts such as checking accounts
  • Ability to pay bills from the account

In addition to those benefits, money market accounts can offer some perks that are valuable to businesses. The perks will vary by financial institution, but here are some of the typical extras you might come across:

  • Waived monthly fee with minimum balance
  • Access to small-business banking specialists
  • ATM access
  • Daily interest rate accrual and monthly payouts
  • Special interest rate bonuses for meeting pre-specified criteria
  • Increased number of free monthly transactions
  • Free or discounted checks
  • Debit cards or credit cards

How to Choose a Business Money Market Account

When searching for a business money market savings account, there are several important factors to consider. You should check the interest rates at several banks and also search for any premiums or promotions. In addition to banks, you might want to consider credit unions when you’re comparison shopping for a money market account.

Interest rates fluctuate and are impacted by various factors including the change in the federal funds rate as well as supply and demand. Interest rates paid to business owners from their money market accounts are typically higher than interest rates of checking and savings accounts. At present, these rates are at historical lows. Yet, as market interest rates rise, so will the rates of business money market accounts.

Read: What Is the Average Savings Account Interest Rate?

How to Open a Business Money Market Account

You might be able to open a business money market account online, but some banking institutions require an in-person visit. To make sure the account-opening process goes smoothly, you should gather all the necessary information and documents before contacting the bank:

  • Name of business
  • Mailing address
  • Proof of identity such as a driver license
  • Federal tax ID number
  • Business name filing document — such as a trade name certificate or limited liability partnership agreement — showing both the business and owner’s names
  • Business organizing document  — such as a certificate of limited partnership — showing the business name and name of partners, and filed with and certified by a state official

Whether you choose to open an account online or in person, there are a few general steps you’ll need to take to open your business money market account:

  1. Present the required documents at the bank or via secure email.
  2. Select the business bank money market account from the available account-type choices.
  3. Ask about any specific promotions for which you might be eligible.
  4. Request a business debit or credit card to link to the account.
  5. Read and understand all of the documentation regarding the business money market account.
  6. Sign the paperwork and fund the account.

After you’ve followed all the steps and completed the required paperwork, your debit or credit card will arrive by mail within several weeks.

Read: Best Business Checking Accounts of 2016

Money Market Accounts: Organize Your Business and Earn More Interest

The only reason not to open a business money market account is if your bank offers a comparable account with higher interest rates or if you cannot abide by the account restrictions. You can create a work-around with the transaction restrictions of a money market account, though, because you should be able to link between your other business accounts like your business checking or savings accounts. And with a good strategy in place, you’ll be able to profit from the money market account’s higher interest rates.