Building wealth is one goal that everyone wants to achieve, whether as an individual or as a business owner. Aside from earning it through hard work, putting your money into something that would make your money earn more is another practice that will help you build wealth. And, finding the right place to park your funds is really crucial, especially to business owners.
Key Takeaways
- Business term deposits offer higher interest rates with fixed terms but restrict access to funds until maturity, making them ideal for stable businesses with surplus cash not needed for immediate operations.
- Business savings accounts provide lower interest rates but offer flexible access to funds without penalties, making them suitable for day-to-day operations and emergency funds.
- Companies can adopt a hybrid approach by using both account types – savings accounts for operational expenses and term deposits for long-term surplus funds.
- The choice between term deposits and savings accounts depends on your business’s cash flow needs, financial goals, and risk appetite.
- New businesses with fluctuating expenses should prioritize savings accounts for better liquidity, while established companies with stable cash flow can benefit from term deposits.
For individuals, saving money empowers them to manage uncertainties and pursue opportunities while maintaining financial stability. This is also true for businesses. Saving money in the bank is an option, where business term deposits and savings accounts are two of the popular choices. These two selections will offer unique benefits, and the choice is yours to decide depending on your business goals, cash flow needs, and appetite for risk.
Let’s check into the key differences between term deposits and savings accounts. After evaluating their unique qualities, you can have a better judgment about which is best for your business.
Business term deposits is the process where you deposit a fixed amount of money for a specific period of time which is called the term, at a fixed interest rate. This term may range from a few months to several years and it pays a higher interest rate than a regular savings account. The fixed interest rate is locked in for the term you choose. It is low-risk since there is a guaranteed return as the rate doesn’t fluctuate. However, you cannot have any access to your fund until the term ends. If there is a need to touch the funds before the term ends, you will have to pay the penalty. So, it is better to avoid using this fund if it is deposited in fixed terms.
On the other hand, a business savings account is a more flexible account since you can deposit or withdraw money as the need arises. Here, you can store your surplus funds while earning interest and you have access to that fund anytime without penalties. However, there is a variable interest rate since rates may fluctuate based on market conditions. Also, typically, the interest rate is lower than that of business term deposits.
When to Choose a Term Deposit for Your Business
Since you do not have access to your fund in a business term deposit, then you have to make sure that you won’t need the surplus funds for a while to avoid being penalized for untimely withdrawals of your money. Of course, if you want a higher interest rate and guaranteed return, go for the low-risk term deposit. And if you’re looking to diversify your savings strategy for long-term growth, the business term deposit is best for you.
If your company has a stable cash flow and wants to use this for future capital investment, then you can proceed with a business term deposit to grow bigger funds for later investment.
When to Choose a Savings Account for Your Business
If your funds will be used for operational expenses or unexpected costs, then quick access to the fund is necessary. This time, it’s better to choose a business savings account. This account is also ideal if you want to build an emergency source of funds. And yes, if you prefer flexibility over fixed returns, then make way for the business savings account.
A business that is just starting will have fluctuating monthly expenses, so you may resort to a savings account to maintain liquidity while earning some interest.
Can You Use Both?
The answer is YES! Many companies have adopted a hybrid approach, benefitting from both the business term deposit and savings account. How? Their funds intended for day-to-day operations and emergencies are placed in business savings accounts while they lock a portion of their surplus cash to term deposits for higher returns.
Final Thoughts
Choosing which deposit is better, a business term deposit or savings account will always depend on your company’s unique financial situation and objectives. A term deposit is a strong choice if you can afford to lock away your funds for higher earnings. Meanwhile, if liquidity and flexibility are your priority, a savings account is a better selection.
To better handle your business finances, you should make an informed decision by evaluating first your cash flow needs and long-term goals. Find the right balance to optimize your available funds. Always make it a practice to review your strategy as your business evolves. Indeed your finances matter, and maximizing your financial growth extremely matters! So, make the right choice now.
