Safely Investing Corporate Cash: Strategies For Smart Money Management

Corporate investing is a way to put your business's surplus cash to good use. Instead of holding all your cash in the bank, you can put it into investments to generate additional revenue. There are several options for investing corporate cash while keeping it liquid, such as bank deposit accounts, short-term government securities, commercial paper, corporate bonds, and foreign currency deposits. When deciding where to invest, it's important to consider the level of risk and return, liquidity needs, investment horizon, and tax implications. Seeking advice from financial professionals can help businesses make informed decisions about corporate cash investments.

High-yield savings accounts

One of the key advantages of high-yield savings accounts is the ease of access to funds. While there may be monthly transaction limits, businesses can still withdraw funds as needed, making these accounts a more flexible option compared to other investment choices. Additionally, high-yield savings accounts provide a safe place to store extra funds, similar to personal savings accounts, while also offering the opportunity to earn interest.

When considering a high-yield savings account, it's important to evaluate the interest rates, fees, minimum balance requirements, and digital banking features offered by different financial institutions. Some accounts may also come with additional benefits, such as ATM cards or check-writing capabilities. It's also worth noting that online banks tend to offer higher rates than traditional brick-and-mortar banks due to their lower overhead costs.

• First Internet Bank: Money Market Savings - This account offers a competitive interest rate of 4.69% APY. While there is a low minimum opening balance of $100, there is a monthly maintenance fee of $5, which can be waived if a balance of at least $4,000 is maintained.
• Prime Alliance Bank: Business Money Market - With a high interest rate of 4.25% APY and no monthly maintenance fee, this account is a great option for businesses. However, there is a minimum balance requirement of $200,000 to earn the stated APY.
• Live Oak Bank: Business Savings Account - Live Oak Bank offers an exceptionally high interest rate of 3.90% APY, with no monthly fees or minimum balance requirements. This account is ideal for businesses that operate online, as it does not accept cash deposits.
• Nbkc bank: Business Money Market Account - This account provides a high interest rate of 2.75% APY and offers the convenience of a debit card for ATM withdrawals. However, it may not be suitable for very large businesses as it does not offer expanded FDIC coverage for balances over $250,000.

Money market accounts

When choosing a money market account, it is important to consider the APY, confirm the availability of check-writing privileges, and ensure that you won't be paying any unnecessary fees. While money market accounts offer advantages, there may be some restrictions, such as a maximum number of transactions within a specified period or minimum deposit requirements.

Some banks that offer competitive money market accounts include Vio Bank, Quontic Bank, CFG Community Bank, UFB Direct, EverBank, and Ally Bank. These banks provide features such as high APYs, low minimum deposit requirements, check-writing privileges, and ATM access, making them attractive options for corporations looking to invest their cash safely and generate returns.

Short-term government securities

Some short-term government securities, such as Treasury bills, may also be exempt from state and local taxes, further enhancing their attractiveness as a safe investment option. The interest income from Treasury bills is typically exempt from state and local income taxes, although it is subject to federal income tax.

Overall, short-term government securities offer a safe and secure investment option for corporate cash reserves, providing a balance between liquidity and returns while minimising credit risk.

Commercial paper

Overall, commercial paper is a safe and attractive investment option for corporate cash, offering diversification, liquidity, and the potential for higher yields compared to other investment options.

Corporate bonds

When investors buy a bond, they lend money to the issuing company, which promises to repay the face value of the bond by a certain date, along with interest at regular intervals. These interest payments are typically made semi-annually but can also be quarterly or annually. The interest rate may be fixed or floating, depending on the type of bond.

Compared to government securities, corporate bonds generally offer higher yields but carry varying degrees of credit risk depending on the financial stability of the issuing company. They are considered less risky than stocks and are suitable for investors seeking regular cash payouts and lower price volatility. However, corporate bonds have a low chance of capital appreciation, and their prices can fluctuate with changes in interest rates and the company's business performance.

When considering investing in corporate bonds, it is important to analyse the company's ability to repay the bond and assess the associated risks, including default risk and interest rate risk. Diversification across different types of corporate bonds and investing in bond ETFs can help mitigate some of these risks.

Frequently asked questions