Whether you’re currently a small business owner or you’re thinking about opening up your own business, at some point, you will need to make some important investments. These investments may be to help you get your business off the ground, or they could be to re-invest in your business to help it grow overtime. Additionally, those who are self-employed will find that investing their money smartly can help tremendously if there isn’t an option for a pension or retirement plan.
Why is APY Important?
Depending on the short-term and long-term needs for your business – as well as the vision you have for it – where you invest your money can make a big difference. This is due to APY. APY, as many business people may already know, is the annual percentage yield on an investment or deposit. Or, essentially, the amount of interest that will accrue and be added to your investment just by choosing the right account to store in it. To help you make the best decision, you’ll have to begin with learning how to calculate APY yourself.
Take a Look at Different Types of Investment Accounts
These days, there’s a lot of information available regarding different types of investment accounts, and all this information can either steer you in the right direction or throw you off. There are government bonds, stocks, IRAs, CDs, savings accounts, and even cryptocurrency (though, we’re not recommending this), just to name a few. Your best course of action would be to do some of your own research on the differences between these accounts, decide which one is best not just for business but for your own goals, and ultimately, speak to a financial advisor at your local bank to make sure you’re on the right track.
Understand APY
APY can tell you how much you’re going to actually make on your investment over a certain period of time. Because different accounts have different compounding periods and interest rates, this can be hard to calculate across the types of investment accounts you’re considering.
Without discounting the importance of making such calculations for the sake of your business – and, even though it doesn’t take a mathematician to do so – it can be rather time consuming to calculate APY. Whether you’re interested in growing your money as quickly as possible or you’d like something that grows your money over a long period of time, you’ll want to know the rate of return on your investment, which is essentially the same concept.
By knowing the terms of the deposit, the compound frequency, and the annual interest rate, you can compare the APY of various options. Just plug this information into GIGA Calculator’s APY calculator, record the different results you get, and start to do some side-by-side comparisons.
Is it FDIC Insured?
Some accounts and investment ventures can earn you big bucks, but there can be a major risk associated with them if they are not FDIC insured. FDIC insured guarantees that your money is safe (up to $250,000), even if what you invest in fails. When your business is on the line, that’s not a risk worth taking. You’ll want to check how safe your investment is before going forward.
Can You Withdraw the Money?
The last factor you’ll need to take into account when choosing where to invest your money based on APY, is what the conditions are if and when you want to withdraw the money. Certain accounts may have penalties based on the terms of the account itself or how much money you have within it. Others may make you maintain a certain amount of money at all times as long as the account remains open. Finally, you’ll have to check which type of accounts you’ll have to pay taxes on, if any.
The Bottom Line
When it comes to financing your business, there is no right or wrong option. Instead, it’s what makes sense for you based on the goals you have as well as the financial needs you have. These goals may also change overtime, depending on with your business. Overall, if you’re looking to grow your investment – even if it’s for personal finance – it’s important to use a tool like the APY calculator to compare the APY of different account options along with other factors.
Hana LaRock is a content writer, copywriter, and content strategist with ten years of experience working in different industries, including tech, cybersecurity, real estate, and business.