Should My Small Business Invest in a Money Market Account?

Posted on December 14, 2022 | Updated on December 14, 2022

Figuring out where to safely invest your money as a small business owner isn’t an easy decision. You don’t want anything too risky, but you also want to make your money work for you–even long-term savings. One option is a money market account, where you can gain interest without risking your savings to something uncertain. 

A money market account provides some significant benefits you might not gain from a certificate of deposit (CD) or stocks and bonds. You’ll be able to gain access to your money when you need it without risk of losing part of your funds. A money market account is a good mid-range investment that is low risk with enough gains to make it worthwhile. 

What Are the Downsides of a Money Market Account?

Before we talk about the upsides, of which there are many, it’s only fair to look at some of the downsides of a money market account. You won’t get the high returns you might by utilizing your money in other investments. Business owners lose some purchasing power as you’d have with an investment account. You also must be cautious as not all money market accounts are FDIC insured. 

Still interested in a money market account for your small business funds? Here are some of the reasons you should place your cash in one:

1. Higher Interest Rates

Just socking your money into a typical savings account isn’t a very good use of your extra money. You won’t earn much, if any, interest. However, a money market account pays a bit better, earning you more interest than a business savings or checking.

2. No Minimum Balances

A business money market account gives you a chance to earn dividends on your deposits. Even though you might need a minimum balance of around $2,500 for a higher dividend rate, you can withdraw your money down to a small balance and still keep the account in good standing.  

Most money market accounts are insured in case of a bank losing a lot of money. The funds are protected but you’ll still earn a bit of interest for letting them keep your money fluid for other purposes. 

3. Easy Access

One of the biggest advantages to a money market account is the ability to gain access to your funds fairly easily. With most banks, you can either initiate a digital transfer or write a check to cover any business expense you deem fit. 

Money markets don’t penalize you for pulling out your funds early like a CD might. If you need the money today, you’ll be able to gain access to it without any problems. Of course, you’ll stop earning interest on the money you remove, but you won’t lose interest you already gained. 

4. Competitive Rates

Compare different banks and money markets. You’ll find the rates are quite competitive when compared to regular savings plans. You won’t make as much as you would investing in the stock market, but you’ll also reduce risk considerably.

As with many forms of investment, as The Federal Reserve raises interest rates, so will the banks raise them on your money market account. Look for one where the fee isn’t so locked in that you can’t make a change if a more attractive offer comes down the pike. 

5. Excellent Emergency Fund Placement

Many small businesses struggle to make ends meet after the first few years. After five years, around 50% of new companies are thriving. By year 10, a mere 33% survive. One way you can ensure survival during lean times is keeping an emergency fund on hand. 

When funds run low during a difficult time, you’ll still be able to pay your top employees and keep your business growing. A money market is the ideal place to hold a rainy day balance as you can access it fairly easily when needed. 

6. Safe Storage

Business owners can invest their access money in a lot of different places. You could invest in another business, take out investment accounts to trade stocks and bonds or buy a CD. Some of those options are safer than others, but a money market account can be one of the most secure places for your money if you make sure it is insured.

Money market accounts should be FDIC-insured or NCUA if a credit union. These government agencies ensure the money is there should a bank find itself in financial arrears and will guarantee a return of most of the investors’ money. 

7. Move Investments Easily

One thing to adore about money markets is that they allow you to access your funds and take advantage of last minute investment opportunities as they arise. For example, if you need to buy new equipment for your business and you get a deal where you can save 50% or more, you can quickly take out money and get an amazing discount.

You can also transfer money to other accounts in your bank, move it to a stock account or pull out cash and use it for anything you might need for your company. 

Is a Money Market Account Right For You?

Since the initial investment is fairly low and you can earn a fair interest rate on your money, you have little to lose when taking out a money market account for your small business. Ultimately, only you know how frequently you might need to access your money and how risky you want to get with your investments. Money markets are a viable option for most brands, though.

About The Author

Eleanor Hecks is the Editor-in-Chief of Designerly Magazine, an online publication dedicated to providing in-depth content from the design and marketing industries. When she's not designing or writing code, you can find her re-reading the Harry Potter series, burning calories at a local Zumba class, or hanging out with her dogs, Bear and Lucy.

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