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Forum Thread
Are trash rates on business CD's a usual thing?
October 12, 2023 at
10:26 AM
Thread Details
I've posted about this before but I'm the treasurer for a 501c7 sporting club. In the offseason (fall/winter/spring) we usually have cash ($150k) just sitting around with no real expenses, so I figured I'd try and invest in a ~6mo CD to at least get something out of it.
We have a 35 year relationship with a regional bank (bank sucks IMHO, but if there's one thing I've learned it's that starting new financial relationships as a small business sucks hard), so I looked to them first. Their personal rate is around 5% (which is more or less normal these days regardless of where you look) so I went into the branch to open one just to be told that their business rates are like 0.2%. Yes POINT TWO percent.
I quickly checked with Bank of America (where I do my personal banking) and they have a business 7 month at 5% (they have other options with absurdly low rates too, like 0.2%).
So what gives?
We have a 35 year relationship with a regional bank (bank sucks IMHO, but if there's one thing I've learned it's that starting new financial relationships as a small business sucks hard), so I looked to them first. Their personal rate is around 5% (which is more or less normal these days regardless of where you look) so I went into the branch to open one just to be told that their business rates are like 0.2%. Yes POINT TWO percent.
I quickly checked with Bank of America (where I do my personal banking) and they have a business 7 month at 5% (they have other options with absurdly low rates too, like 0.2%).
So what gives?
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We have a 35 year relationship with a regional bank (bank sucks IMHO, but if there's one thing I've learned it's that starting new financial relationships as a small business sucks hard), so I looked to them first. Their personal rate is around 5% (which is more or less normal these days regardless of where you look) so I went into the branch to open one just to be told that their business rates are like 0.2%. Yes POINT TWO percent.
I quickly checked with Bank of America (where I do my personal banking) and they have a business 7 month at 5% (they have other options with absurdly low rates too, like 0.2%).
So what gives?
In my experience, business banks are the worst and typically offer nothing worthwhile. Next to zero rates are typical and the "services" they provide can be had for cheaper usually (often free) at other more customer friendly brick and mortar banks like TD Bank, Capital One, etc. A few of the online banks like Amex have business checking offering around 1.3% but that is about it.
Assuming a 501c7 is a corporation with an EIN, I would look into going directly to T-bills which are yielding 5.4%+ state and local tax free. You can get durations of 4, 8, 13, 17 or 26 weeks:
https://www.treasurydir
and set up auto renewal\reinvestment directly at Treasury Direct. With durations as short as 4 weeks, it should be fairly easy to manage liquidity imo.
In fact, T-bills are the way to go generally right now imo over CDs or money markets.
My 2 cents.
Assuming a 501c7 is a corporation with an EIN, I would look into going directly to T-bills which are yielding 5.4%+ state and local tax free. You can get durations of 4, 8, 13, 17 or 26 weeks:
https://www.treasurydir
and set up auto renewal\reinvestment directly at Treasury Direct. With durations as short as 4 weeks, it should be fairly easy to manage liquidity imo.
In fact, T-bills are the way to go generally right now imo over CDs or money markets.
My 2 cents.
We do have an EIN but doing anything financially has been a PITA. For example, one of my first ideas was to get a CC for the club mostly for points but also just for general ease of payments (rather than be issuing reimbursements all the time because entering that into QBO and sending out checks is a PITA). I discovered there is basically a huge gap between personal credit and corporate credit, meaning it's essentially impossible to get a CC secured by business assets unless you're some gigantic multinational corp. I would up using my SSN (even though the card is tied to the "corporation"). I have great credit, but I didn't want to create more things that are tied to people rather than the club, makes transitioning in and out of board members more difficult.
We do have an EIN but doing anything financially has been a PITA. For example, one of my first ideas was to get a CC for the club mostly for points but also just for general ease of payments (rather than be issuing reimbursements all the time because entering that into QBO and sending out checks is a PITA). I discovered there is basically a huge gap between personal credit and corporate credit, meaning it's essentially impossible to get a CC secured by business assets unless you're some gigantic multinational corp. I would up using my SSN (even though the card is tied to the "corporation"). I have great credit, but I didn't want to create more things that are tied to people rather than the club, makes transitioning in and out of board members more difficult.
Yeah most business credit cards a normal person\entity can get are tied to the individual in the end (though many of them will not show up on your personal credit report). I find that to not be so much of a problem as long as you control the reimbursement of charges. You can simply set up a corporate checking account and pay the credit card via Bill Pay. Enter the transactions\invoices as normal in your accounting software. Only use the card for business expenses. If you need the approval of other officers\managers for reimbursement, then it becomes more problematic. If you want to let other members do the same, then someone has to control the approval and you are better off just invoicing and paying via Bill Pay which can all be done online, so no writing of checks or dealing with stamps, envelopes or mailing as the bank will do all that for you at no cost.
Banks may offer lower business CD rates to mitigate risks associated with corporate accounts, unlike personal accounts where rates may be more competitive to attract individual customers.
It is a CD not a loan they are giving you. There are no risks to the bank. You give them your deposit and they pay x% on it for the duration. They give crummy rates because they can wrt businesses or they simply don't want to service business clients in that area. Business returns on cash have typically been near zero, esp. at commercial banks. They much rather businesses put their money into accounts that yield zero...simple as that.