What is a business certificate of deposit?

A business certificate of deposit (CD) is structured similarly to personal CDs but opened under a business entity. Business CDs offer a low-risk savings option for businesses, and, like personal CDs, allow businesses to save money at a fixed interest rate for a set length of time (known as the CD term).

Business CD accounts allow businesses to set aside extra funds that are not needed immediately, while providing a predictable return on investment due to fixed interest rates. If opened at an FDIC-insured institution, business CD accounts may also be insured up to $250,000 on eligible deposits per depositor, per insured institution, per ownership category, which may provide businesses with a layer of security.

Before opening a business CD account, you may want to consider the possible benefits and limitations. Here are some things to consider:

• Guaranteed returns with fixed rates: Contractually fixed interest when held to maturity (subject to early-withdrawal penalties). Deposit insurance protects against bank failure up to coverage limits. Essentially, businesses will know exactly how much interest they’ll earn during the CD term, which can help with financial planning and budgeting.

• Safety with insured deposits: Eligible funds placed in CDs at FDIC- or NCUA-insured institutions are protected up to applicable limits. Since FDIC insurance covers CDs at eligible banks, this can offer an extra layer of safety.

• Earn more on idle cash: CDs typically offer higher interest rates than standard checking or business savings accounts, helping excess funds work harder.

• Predictable growth for reserves: With set maturity dates and fixed yields, CDs can be a reliable tool for managing short- to medium-term business reserves or emergency funds.

• Limited access to funds: Once money is deposited, it’s locked in for the term, which can be restrictive if unexpected expenses arise.

• Early withdrawal penalties: Taking funds out before maturity usually results in a penalty, which could reduce or erase earned interest.

• May not keep up with inflation: If inflation rises faster than your CD rate, the real value of returns could shrink over time.

• Opportunity cost if rates increase: Locking into a rate means potentially missing out if higher-yield CDs or better investment opportunities appear later. If opting for a callable CD, keep in mind that these can be redeemed early by the bank, typically when rates fall — creating reinvestment risk. However, a CD laddering strategy can also help you take advantage of rising rates.

In general, business CDs work like personal CDs, where you earn fixed interest until your CD matures, but here’s a step-by-step breakdown of how they function and what to look out for:

1. Set a business goal

Set a financial goal for your business and a time horizon for your CD. Goals can be anything from preserving cash to earning a higher yield, or simply having a CD ladder for liquidity.

2. Shop rates and product types

Compare offers across banks and credit unions. You might see options like standard CDs, no-penalty CDs, callable CDs, and more. You may want to check APY, term length, and promotional rates.

3. Check FDIC/NCUA coverage

Confirm the institution is FDIC-insured (or NCUA-insured in the case of credit unions). Business accounts and CDs are typically insured, but coverage may depend on the legal ownership category — usually $250,000 per depositor, per insured bank, per ownership category. You can use the bank’s disclosures or the FDIC’s tools to verify coverage.

4. Gather necessary documentation

To open a business account, you may need extra documentation, such as a tax ID or business formation documents; however, actual requirements may vary by institution.

5. Make a deposit

Deposit a lump sum of money (as a business) into the business CD account. This is usually money you won’t need immediately (like reserve funds).

6. Choose a fixed term

You will need to determine a term length for your CD. CD terms generally range from three months to five or more years, so you may want to consider your goals and liquidity needs wisely.

7. Your money earns guaranteed interest

The interest rate is locked in upfront, which means even if market rates change, your business still earns the agreed rate. Interest may compound or be paid out periodically to your business bank account. Leave your money untouched throughout the term, or pay an early withdrawal penalty if you do need to access it before the CD matures.

8. Choose what happens next at maturity

You will need to choose what happens once your CD reaches maturity. Options may include:

• Withdrawing the funds and interest earned

• Renew or roll into a new CD

• Move into different terms or a CD ladder 

However, you will need to decide promptly (often seven to 10 days after maturity, but may vary by institution) to avoid your CD renewing automatically.

If you’re looking to boost your personal savings, explore competitive CD rates at Raisin and start saving towards your goals today.

Some CDs for businesses may require a minimum deposit (e.g., $500 to $1,000), but actual amounts may vary by institution. Some larger banks may require higher minimums, while many online institutions might have lower entry requirements. It can be wise to check requirements beforehand to ensure you have enough to meet the minimum deposit amount.

When determining if a CD is right for your company, you might want to keep the following factors in mind:

• Does your business have excess cash reserves they won’t need immediately and can lock away for a set term?

• Does your business have an overall broader cash management plan?

• Does your business require daily liquidity?

• Can your business benefit from a different type of savings product (such as a business money market account)?

Taking these things into account along with your business goals and risk tolerance can help you decide if a CD is a suitable option.

Business certificates of deposit can be a practical tool for businesses looking to earn guaranteed returns on excess cash reserves while keeping risk low. They offer fixed interest, insured protection (if eligibility requirements are met), and financial predictability — making them well suited for strategic reserves or planned expenses.

However, since funds are locked for a set term, it's important to ensure your business won't need immediate access to that money. For companies that require more flexibility, alternatives like business money market accounts or high-yield savings may be a better match.

If you're exploring ways to make your business cash work harder, comparing CD rates across institutions can help you find options that align with your liquidity needs and financial goals. If you’re thinking of starting a business and want to save some extra cash, Raisin is here to help. While Raisin’s partners do not offer business accounts through the platform, personal savings products could help you jump-start your savings to help you save towards opening your own business. Explore account types, compare interest rates, and sign up today to start maximizing your savings potential!

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.