We all want to grow our business and maximize our earnings, but we often see both small businesses and medium-sized businesses missing small changes in their account structure that could add thousands to their bottom line every year. A financial industry fascination with complex account structures and fee schedules only adds to the uncertainty when a business is deciding where to bank.
"Complexity is the enemy of execution." Tony Robbins
We are commonly attracted to the complex, but it also traps us from the efficiency of a simple structure. Here are three moves your business can make today to get more out of your business checking.
1. Move into a business checking account that pays interest
Your business may be better set in a business checking account that pays interest. In July 2011, a change in federal law let banks pay interest on business checking for the first time since the 1930s. Before that, business checking accounts earned earnings credits, which reduced fees but never produced actual earnings. That shift matters most for a business that carries a healthy balance without a high volume of transactions. If your balance is doing the work and your activity is modest, an earnings credit gives you nothing back once your fees are covered.
Deciding between the two is mostly a question of which side of your account is bigger, the balance or the activity. Here is how our business checking accounts sort out:
| Account | Designed for | How activity is charged | Earns interest |
|---|---|---|---|
| Small Business Checking | Small businesses with limited banking needs | A block of free items each statement cycle, then a charge per item | No |
| Analyzed Checking | Businesses with a higher volume of activity | Every item priced individually, with an earnings credit applied against the fees | No |
| Edge Checking | Small to medium-sized businesses with moderate transaction activity | A block of free items each statement cycle, then a charge per item | Competitive interest |
The pattern to notice is the third row. A business sitting in an analyzed account because that is where it was put years ago, but running modest activity today, is paying for a pricing structure built for volume it no longer has. The earnings credit covers the fees and stops there. In an interest-bearing account, the same balance keeps earning after the fees are covered.
Running a non-profit or a public entity? Non-Profit Checking and Public Funds Checking both pay interest as well, and each is built around how those organizations actually operate.
The fastest way to find out where you stand is to let us run the numbers on your own account. Send us three months of statements. Within three business days we will tell you what your average monthly service charge would be here, and whether you are already in the right account somewhere else. Current balance requirements and charges for every account are on our business checking and savings page, current rates are on our rates page, or you can talk to a banker and go through it together.
2. Sweep into a business money market account or against your line of credit
Small businesses often miss an opportunity to sweep excess funds into a money market or savings account, or to pay down a line of credit. The process starts with isolating how much you actually need on hand for everyday transaction activity. If that number is $25,000, $50,000, or $100,000, set the target and then contact your banker to set up a sweep of the remaining funds into a money market account or against your business line of credit.
Our sweep service moves funds between accounts automatically, so once it is set you are not managing it week to week. When you set it up, ask your banker to walk through any transaction limits that apply to the account you are sweeping into, since the sweep can move funds in both directions.
3. Use remote deposit to reduce travel time and manage offices across a geographic area
Customers have mailed checks from office to office, driven them to the bank, or scheduled regular branch visits to make deposits. Remote deposit capture, commonly called RDC, lets your offices scan check deposits from where they sit, which cuts the delay and improves collection times.
Built for businesses with regular check collection activity, remote deposit has become steadily more common. A short list of what it does for you:
- Print daily reports, keep detailed records of deposits, and make deposits when it is convenient for your business.
- Fewer people handling checks and a shorter process, which reduces the opportunity for fraud.
- No more checks sitting on a desk waiting for the next trip to the bank. Funds get to work sooner.
- Once a business is set up with RDC, it usually finds other everyday tasks that get streamlined along with it.
- Minnesota winters. The roads get difficult and the weather gets trying. Remote deposit lets you stay in the warmth of your office and still make the deposit.
Moving to remote deposit is straightforward with the support of your local banker. We provide the software and the hardware, plus the on-site training to get you running.
Small moves add up
None of these three moves is complicated, and none of them requires changing banks to find out whether they apply to you. If you want the full picture of how money moves through a business account, our Treasury Management Guide covers ACH origination, remote deposit, sweeps, wires and payment processing in detail.
Common questions about business checking and interest
Can a business checking account earn interest?
Yes. Federal law has allowed banks to pay interest on business checking accounts since July 2011. Not every business checking account does, though, and that is the part businesses get caught by. Accounts built for high transaction volume are usually structured around an earnings credit instead, which reduces fees but produces no earnings. Whether your specific account pays interest is stated in its terms, and you can see which of ours do on our business checking and savings page.
Why did business checking accounts not pay interest for so long?
The Banking Act of 1933 prohibited banks from paying interest on demand deposits, which is the category business checking falls into. That prohibition stood for nearly eighty years. It was repealed by the Dodd-Frank Act, effective July 21, 2011. Many businesses have been in the same account structure since before that change and have never revisited it, which is why this is worth checking even if nothing about your business has changed.
What is an earnings credit, and how is it different from interest?
An earnings credit is a calculated allowance based on your balance that gets applied against your account fees. It can reduce your service charge to zero, and that is where it stops. It cannot pay you anything. Interest is different: once your fees are covered, interest keeps accruing to your account. For a business with a strong balance and modest activity, the earnings credit runs out of work to do long before the balance does.
What is an analyzed checking account?
An analyzed account prices every item individually rather than giving you a block of free items, then applies an earnings credit against the total. It is built for businesses running high transaction volume, where itemized pricing works out better than a flat allowance. The structure is efficient for that business and expensive for a business that has quieted down since it opened the account.
How do I know if I am in the wrong business checking account?
The two numbers that decide it are your average balance and your monthly item count. If your balance is large relative to your activity, an interest-bearing account is usually the better structure. If your activity is heavy, an analyzed account usually is. You do not have to work it out on your own. Send us three months of statements and we will tell you what your average monthly service charge would be here, and whether you are already in the right account somewhere else.
Is there a minimum balance to earn interest on a business checking account?
Our interest-bearing business checking accounts carry an average available balance requirement, and it differs by account. Current requirements for every account are published on our business checking and savings page, and current rates are on our rates page.
Can a non-profit earn interest on its checking account?
Yes. Non-Profit Checking is an interest-bearing account built for 501(c)(3) organizations, and it is a common gap because many non-profits opened a general business account years ago and were never moved. If you sit on a board or serve as treasurer, this is worth raising at your next meeting. More on how we work with boards, treasurers and donor funds is on our non-profit banking page.
Can a city, county, township or school district earn interest on public funds?
Yes. Public Funds Checking is an interest-bearing account built for government and public fund entities, and it is structured around the collateralization requirements those entities operate under. Chapter 118A questions and how public deposits are secured are covered on our municipal banking page.
What is a sweep, and does my business need one?
A sweep automatically moves funds between your checking account and either a money market account or a business line of credit, based on a target balance you set. It is worth setting up when you consistently carry more in checking than your everyday transaction activity requires. The starting point is deciding what that everyday number actually is, because the sweep is only as good as the target behind it.
Is remote deposit capture worth it for a small business?
It depends on how many checks you take and how far you are from a branch. If checks arrive regularly and someone is driving them to the bank, remote deposit usually pays for itself in time saved before you count the faster collection. If you take a handful of checks a month and pass a branch anyway, it may not be worth the setup. A banker can tell you which side of that line you are on in one conversation.
Do I have to switch banks to move into an interest-bearing account?
Not necessarily. If you already bank with us, this is usually an account conversion rather than a new relationship, and your banker can handle it. If you bank somewhere else, it is worth asking them first. We would rather you get the right structure than move for its own sake, and if the answer you get is not a good one, we are happy to look at your statements. If you are weighing the move more broadly, here is how we stack up among Minnesota banks.
Topics:
