Saving for a Rainy Day Several Different Ways

The low-interest savings environment is slowly changing. Explore these options for earning some dollars on your operating assets

If your finances are strong, you’re holding three to six months of cash — perhaps more — to make sure you can cover bills easily without having to operate your business from check to check.

Cash reserves cover your ordinary bills along with the classic “rainy day,” such as when a truck breaks down and needs a major repair. Your reserves can be a lot of money, but you also need it ready at nearly a moment’s notice. So what do you do with it?

Of course you can’t put it in high-flying stocks. You can’t take that risk if you want to pay your bills on time. The simplest and most risk-free option will be at a bank or credit union, where deposits are insured for up to $250,000 by the Federal Deposit Insurance Corp. or the National Credit Union Administration. If you need more cash reserves than that, you may need more than one financial institution.


By now you might be feeling antsy. Just leave all that money in the bank, to sit there? When I could be investing it in the market and making a lot more money on it? Well, yes. Who wants to see their cash reserves nosedive along with that high-flying stock on one of those volatile trading days?

According to Bankrate, the average savings account nationwide is paying barely any interest (0.10% when this column was written) and the average checking account even less (0.08%). True, some banks offer special promotional interest rates on conventional checking or savings accounts. But those probably have fees tied to balance requirements or are limited to brand-new customers. Or the best rates might apply only up to a certain ceiling.

But there’s good news. You don’t have to park reserves in an account where they’ll only deprive you of earnings you could make perfectly safely. The key? Don’t keep all your money in these safe but interest-stingy accounts. Treat them simply as a holding pen for the bills you’re about to pay that month. For the rest of your reserves, there are better, and equally low-risk, choices.


Money market accounts, usually with check-writing privileges, are among the most popular alternatives for holding cash that needs to be liquid but can earn some interest while waiting to be put to use.

“A money market is like an interest-bearing account,” says Melinda M. Toy, CTP, vice president and director of treasury management for PyraMax Bank, a full service commercial bank in suburban Milwaukee. “It’s 100% liquid.” It’s also insured by the FDIC. And Toy says economic factors and competition are pushing money market interest rates into the range of 2% to 2.5%.

One consideration is that money market accounts limit you to six transactions a month. “It’s not for paying frequent operating expenses,” Toy points out. But you could use such an account to hold your cash and simply make a single withdrawal once a month to cover all of your month’s expenses.

Money market accounts also vary in minimum balance requirements. Some pay better returns tied to a higher minimum. As always, research the details of the account, shop around and compare several offerings.


Another federally insured instrument is that old standby: the bank certificate of deposit. CDs pay interest, too. Unlike the money market, CDs tie up your money in return for somewhat higher interest rates. The higher interest you want, the longer the CD’s term is going to be — three months to five years or even longer.

For liquid cash, that probably sounds like a non-starter. But there’s a workaround. One longtime strategy is to “ladder” CDs — staggering their expiration dates so that at any one time you may be within a month or so of being able to cash in if necessary.

Here’s how it works: Suppose you have $20,000. Instead of putting it all in a one-year CD, you might buy a three-month CD for $5,000, a six-month CD for $5,000, a nine-month CD for $5,000, and a one-year CD for $5,000.

As each of the lower-interest-rate, shorter-term CDs expires, you roll the money over into a new one-year CD at a higher return. That way, you’ll have one that comes due every three months in perpetuity. Nine months in, all four CDs together will earn the equivalent of a one-year yield on your original $20,000. But you can still get access to the money in $5,000 increments every three months.

You can employ the same tactic over much longer terms, and you can time expiration dates so they’re closer together. Of course, shooting for a longer maturity date, a shorter time between CD expiration dates, or both will take longer to make it all.

Toy points to another recent offering from some banks and credit unions: so-called liquid CDs. “It’s a CD, but it’s kind of like a money market,” she explains. It offers the higher earnings of a CD rate, but allows additional, though limited, access to funds. For example, Toy has seen some that permit at least one withdrawal without a penalty over the term of the certificate.

If your financial institution offers such an instrument, consider it. It won’t be as liquid as a money market account, so you can’t use it as feedstock to cover those monthly bills from your business checking account. But it does offer a secure, money-earning harbor for an emergency stash.

Then there’s another CD variation, Toy says, one for clients who want the security and high interest of a CD but don’t need liquidity, and who are managing reserves that exceed the FDIC limit of $250,000.

PyraMax Bank and other banks are partnering with other financial service agencies to offer CDARS. The term is short for the Certificate of Deposit Account Registry Service, and what they do is essentially divide the assets of the instrument among several banks so that each bank’s share is at or below the $250,000 limit.

For example, if you wanted to put $2 million into a CD with your participating bank, the program could then turn that into eight individual security interests, each totaling $250,000. Your bank might have one security interest up to $250,000, and one would be imputed to each of several other participating banks. But instead of having to deal with all eight banks, you only have to work with your home bank, and on paper it is still a single account with all $2 million.


Another option is an online bank. Bankrate reports savings interest rates of 2% or more from some online banks, which also offer money markets and CDs. Some can offer higher savings account interest rates because they don’t have brick-and-mortar overhead costs. Bankrate periodically evaluates and rates the best of these banks; check their website at

As with traditional banks, however, they might require a higher minimum balance for the best rates. And you must do all your business electronically, so you can’t deposit cash directly, although online banks offer ATM access for cash withdrawals. Many even reimburse you (although there’s a monthly cap) if the ATM you use charges a fee.

Before choosing an online bank, carefully research fees for transactions, monthly account maintenance or falling below a minimum balance. A miscalculation could undercut any financial advantages you gain. And consider whether you are more comfortable working with a banker who can give you advice on the unique circumstances of your business.


If your objective is absolute safety, you’re better off sticking with a bank account of some kind. But as long as your funds are spread around, you could consider some additional options. They might make you money, but they aren’t insured the way banks are. So you could lose money, too.

Dividend stocks are one of those options. Companies that pay dividends on their stock are usually thought to be more stable overall, so in addition to paying periodic dividends, their price may appreciate in a generally favorable market. Think tortoise, not hare.

But never put money in any particular investment unless you can afford to lose it all. The most rock-solid company could be one catastrophic event away from collapse, from a natural disaster, financial scandal or unexpected competitive disruptor. So whatever you do, don’t consider those your short- or even medium-term emergency reserves.


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