Can a Business Open a Certificate of Deposit (CD)?

A Certificate of Deposit (CD) is a type of savings account designed to hold a fixed sum of money for a specific period, typically offering a fixed interest rate. Businesses can open CDs to manage cash reserves and optimize financial resources, contributing to overall financial health and planning.

Understanding Business Certificates of Deposit

A business Certificate of Deposit functions as a time-bound deposit account where a company agrees to keep a specific amount of money locked away for a predetermined duration. This period can range from a few months to several years, during which the deposited funds accrue interest at a fixed rate established at the time of opening. This fixed interest rate generally exceeds those offered by standard business savings accounts, making CDs appealing for growing surplus funds. The predictability of returns allows businesses to forecast earnings with certainty, aiding financial planning.

Businesses often choose CDs for their low-risk nature and capital security. Funds held in CDs at FDIC-insured institutions are protected up to $250,000 per depositor, per FDIC-insured bank, per ownership category, offering a high degree of safety. This makes them suitable for short-to-medium term financial goals, such as saving for equipment purchases, business expansion, or building a financial cushion. However, an early withdrawal penalty applies if funds are accessed before the maturity date. Business CDs are accessible to various entity structures, including sole proprietorships, partnerships, and corporations. The primary consideration for businesses is ensuring sufficient liquidity for immediate operational needs, as CD funds are not readily accessible without penalty. Many financial institutions offer business CDs, providing a secure avenue for companies to earn interest on capital not required for daily operations.

Types of Business Certificates of Deposit

Traditional Certificates of Deposit feature a fixed interest rate for the entire duration of the term, providing a consistent and predictable return. This common type locks in the interest rate upon opening, regardless of market fluctuations. Businesses can select terms that align with their financial objectives, ranging from a few months to several years.

Jumbo CDs are designed for larger deposits, typically requiring a minimum investment of $100,000 or more. In exchange for the larger deposit, jumbo CDs often offer slightly higher interest rates compared to standard CDs. They are particularly useful for businesses with substantial cash reserves.

Callable CDs provide the issuing financial institution the option to redeem the CD before its scheduled maturity date. While these CDs often come with a higher interest rate, the issuer typically exercises the “call” option if prevailing interest rates decline. If a callable CD is redeemed early, the business receives its initial deposit plus accrued interest up to the call date.

Step-up CDs feature a predetermined schedule of interest rate increases throughout their term. The interest rate automatically rises at specified intervals, providing a gradual boost to earnings. However, initial rates on step-up CDs may start lower than traditional CDs, and their blended yield might not always surpass standard fixed-rate options.

Brokered CDs are purchased through a brokerage firm rather than directly from a bank. These CDs are issued by banks but facilitated by brokerage firms. A key advantage of brokered CDs is the potential to expand FDIC coverage by purchasing CDs from multiple banks through a single brokerage account. Unlike traditional bank CDs, brokered CDs may also be traded on a secondary market, offering some liquidity before maturity.

Opening a Business Certificate of Deposit

Opening a business Certificate of Deposit involves selecting a financial institution that offers terms aligning with your company’s financial strategy. Businesses can often choose between opening a CD online or visiting a physical banking center, with online options sometimes providing enhanced convenience or competitive rates.

To open a business CD, you will typically need:
Official business formation documents, which vary based on the entity’s legal structure. For corporations, this involves Articles of Incorporation; for partnerships, a Partnership Agreement; and for Limited Liability Companies (LLCs), an Operating Agreement. Sole proprietorships might need an Assumed Name Certificate or Doing Business As (DBA) registration.
Your Employer Identification Number (EIN), also known as a Tax Identification Number.
Personal identification for all authorized signers on the account, including a government-issued identification document (such as a driver’s license or passport) and their Social Security Number or Individual Taxpayer Identification Number.
Proof of the business’s physical address, such as a utility bill or lease agreement.
Copies of business licenses, particularly if operating in a regulated industry.
A formal resolution, for certain business structures, demonstrating who is authorized to open the account and conduct transactions on behalf of the entity.

An authorized signer is an individual designated by the business to conduct financial transactions on its behalf, such as making deposits, withdrawals, or signing checks. While they do not own the account, authorized signers have specific permissions, and businesses often submit an authorized signer form to define these roles and responsibilities. Minimum deposit requirements for business CDs can vary significantly among institutions, often ranging from $1,000 to $2,500, though some jumbo CDs require $100,000 or more.