Savings considerations and strategies for a growing business
Hear from our expert, Ann Marie Lynch, Head of Business Deposits at Wells Fargo, on how to approach your savings plan.
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in general, I see small business owners using savings accounts both to manage their cashflow in the short term and to have funds on hand for strategic investments when opportunities arise in the long run.
Small business owners often find having a savings account separate from their business checking account convenient for two reasons.
The first is that they can earn a yield on excess funds and the second is that by having a separate account, that really helps them think about their savings goals and helps them achieve them.
A good example of a client that we work with who uses business savings is a cell phone accessories retailer. He's figured out what his fixed expenses are for things like rent and payroll and utilities. And he makes sure that in the months when he has really strong sales, that he sets aside enough in a savings account to be able to carry him through months that might be a little bit lighter. He's used the strategy for a number of years and it's been really successful for him.
When a business owner is thinking about what's the right savings vehicle for them, there are three things that they should consider: Yield, flexibility and convenience. So usually a time account or CD will often have a higher interest rate than a savings account, but you have to lock your money in for a fixed period of time. A savings account will offer you more flexibility. You can withdraw your money when you need it, but it often pays a slightly lower yield.1 And then finally on the convenience factor, it's often most convenient to have your savings account where you have your main operating account to facilitate transfers between checking and savings, use your savings account for Overdraft Protection2, have a single place to go to manage all of your cash. However, if yield is really important to you, sometimes you can shop around and an internet bank, for example, could offer a higher yield.
My recommendation for small business owners who want to improve their savings strategy is to make sure that they meet with their banker or financial advisor at least once per year. A best practice is to plan to have funds to set aside to be able to cover your near-term cashflow needs as well as longer-term funds in case you have the opportunity to make a business investment, you'll be well positioned to do that.
1 Regulation D and Wells Fargo limit certain types of withdrawals and transfers from a savings account to a combined total of six per monthly fee period. If the limit is exceeded, an excess activity fee for each withdrawal or transfer over the limit will be assessed. If the limit is exceeded on more than an occasional basis, your savings account could be converted to a checking account, which would discontinue any Overdraft Protection it might be providing to another account. There is a maximum of three excess activity fees per fee period. Please refer to the Deposit Account Agreement and the Business Account Fee and Information Schedule for details.
2 Subject to applicable transfer fees. Overdraft Protection transfers from a savings account count toward the Regulation D and Wells Fargo combined total limit of six transfers and withdrawals per fee period. If the limit is exceeded, an excess activity fee for each transfer or withdrawal over the limit will be assessed. If the limit is exceeded on more than an occasional basis, your savings account could be converted to a checking account, which would discontinue any Overdraft Protection it might be providing to another account. There is a maximum of three excess activity fees per fee period.