A business certificate of deposit (CD) is a time deposit with a fixed term (30 days to 5+ years) and a fixed interest rate. Higher yield than savings accounts or MMAs in exchange for locked funds. Early withdrawal typically incurs a penalty equal to several months of interest.
Business CDs offer the highest yield among standard bank deposit products because the business commits to leaving funds on deposit for a specific term. The bank in turn can deploy those funds at longer durations, enabling it to pay a higher rate. CD terms typically range from 30 days (short-term parking) to 60 months (5 years). Common business CD use cases: (1) Known future expense — a business that plans a major renovation or equipment purchase in 12 months can lock rate on a 12-month CD rather than holding funds in a lower-yield savings account. (2) CD laddering — split a lump sum across multiple CDs maturing at different intervals (3-month, 6-month, 12-month, 24-month) so funds are accessible on a rolling basis while earning better average yield. (3) Loan collateral — some lenders accept a business CD as collateral for a secured line of credit, allowing the business to borrow against the CD without breaking it. FDIC insures CDs at member banks up to $250,000 per depositor per institution (https://www.fdic.gov/resources/deposit-insurance/). CDs are held at specific term maturities; early withdrawal typically costs 90-180 days of interest depending on term length. For SBA 504 equity injection: a business CD demonstrating the borrower's required equity contribution (typically 10% of total project cost) supports loan approval.
Yes, but there is typically an early withdrawal penalty — commonly 90 days of interest for short-term CDs (under 12 months) and 180 days of interest for longer CDs. Check the specific penalty before opening, especially for large deposits. Some 'no-penalty CDs' waive the early-withdrawal fee but typically offer slightly lower rates.
Yes. Many banks accept business CDs as collateral for a secured loan or line of credit, often lending up to 90-100% of the CD value at a rate 1-2% above the CD yield. This allows the business to access liquidity without breaking the CD, preserving the yield and avoiding the early-withdrawal penalty. Ask your banker specifically about 'CD-secured loans.'
CD laddering splits a lump sum of cash across multiple CDs with staggered maturities (e.g., 3, 6, 12, 24 months). As each CD matures, you can either spend the funds or reinvest at current rates. Laddering provides better average yield than keeping all funds in a savings account while maintaining rolling access to a portion of the funds.