Maine-based small business owners often face a balancing act when it comes to deciding how much cash to keep in their regular checking accounts.

On one hand business owners want to keep the money available for an emergency or great opportunity. But on the other hand, it doesn’t generate any extra income, as banks are prohibited by law from paying interest on regular business checking accounts.

While it is possible that Congress may one day decide to change these laws, in the meantime, business owners have to be creative to earn the highest rate of return on their company’s money. The best approach may be to calculate a monthly cash budget and a daily cash position that forecasts the extra cash you have available. Then, look into options that will enable you to earn interest, while still having access to the funds when you need them.

Three bank investment options are:

1. Certificates of Deposit. These are normally single deposit investments that have varied maturity options. They can pay a set or variable interest rate.

With CDs, you usually earn a higher interest rate than you get on other bank deposit investments, because the bank feels comfortable that the funds will stay in your account until the maturity date.

The downside is that withdrawals from a CD before maturity generally result in a penalty. Sometimes, however, there are CDs that have no early withdrawal penalty, or some that allow withdrawals at periodic dates throughout the life of the CD.

A good strategy is to stagger maturity dates on several CDs, instead of having one deposit make up a single CD. This will enable you to have access to your cash on a continuing basis.

2. Money Market Accounts. These accounts pay interest and give you some access to your funds. Usually you can write checks and make deposits whenever additional funds become available. The catch is that you can make only a limited number of withdrawals during a given period. For example, three in a month.

Money market accounts aren’t designed to handle all of your checks or withdrawals. But they can be an easy way to earn interest and have limited access to the funds.

3. Sweep Accounts. These are essentially checking accounts in which you give the bank permission to invest, or sweep, some money into an interest-generating account on a day-to-day basis. You may need to ask the bank if these accounts are available, as they aren’t always promoted.

Something to remember: Sweep accounts may not be federally insured. If the financial institution fails, you may lose some of your money. With a traditional account, federal insurance generally only covers the first $250,000 on deposit at each institution.

For more information about these kind of investments for your small business, talk with Filler & Associates.