B\\YOND Business Banking COO, Rodger Dunn shines the spotlight on how to protect a business's cash investments and make an uncertain future a bit more predictable with guaranteed returns.
Fixed Deposit accounts have been in existence for over a century. They’re an important part of every investment portfolio, but the global Covid-19 pandemic really shone a spotlight on just how useful cash savings can be.
The only thing certain today is uncertainty
No one could have foreseen industries coming to a standstill overnight, or supply chains suffering the degree of disruption that the pandemic triggered.
Some businesses experienced only small dips in their income. Others were decimated. For most companies, access to cash and credit kept salaries paid and the doors open. Businesses that had no cash on hand or that were unable to access credit had to make some extremely tough choices.
Business owners typically do not invest cash into Fixed Deposit accounts as rescue funds, and yet that’s exactly what they became in 2020. Where previously a Fixed Deposit or a Notice Deposit was part of a mix of portfolio investments, when the pandemic hit, businesses suddenly had cash they could draw on, or a deposit that they could use as surety to access a credit line.
At Sasfin, we worked closely with our clients to weather the storm, allowing those who needed assistance to withdraw funds early without penalties. These were used for continuity of business, for the payment of employees or to diversify their business plans to ensure income stayed the same, even though some revenue streams dried up.
Understanding the product portfolio mix
It’s important to remember that these cash investments do serve an important purpose, however, and many of our clients replaced the funds they had withdrawn as soon as they could. In these cases, we have discussed lending facilities, allowing cash to be saved and invested while a more appropriate credit product has solved a business need.
Here is the overall mix businesses should consider:
Notice Deposits: A Notice Deposit is a fixed-term deposit or savings account that allows you to withdraw funds after advanced notification is given. These can be 32-day, 60-day, 90-day and 120-day accounts, and are generally a good way to save for a deposit on a large purchase, or to save money to deposit into a Fixed Deposit Account. Your capital is guaranteed, and you earn interest on the funds you deposit.
Fixed Deposits: A Fixed Deposit can be a 12-Month deposit, 24-Months or even ranging up to five years. It is an investment that offers a guarantee on your capital and a fixed interest rate to help you reach your short- or medium-term goals faster. There is a minimum amount required to open the account, and the interest can be drawn as a monthly income, or it can be left to compound and grow in the investment. A big benefit of Fixed Deposits is that they carry no monthly management fees, no annual fees, and no hidden fees. When choosing the duration of a Notice or Fixed Deposit, consider what you are saving the funds for and when you will need them or to use them.
A portfolio mix: No product is as effective in isolation as it is working within a larger portfolio mix. We often speak about personal investments, but business investments are also critical to overall growth and success. When a business has an investment portfolio, it is far easier for a bank to gain insight into its financials instead of only relying on a bank statement.
Prepare for the future
In these times of uncertainty, guaranteed returns protect a business’s future. More than that however is the need to diversify. There are many different financial instruments available to companies that are serious about building wealth and securing a future for the business and its employees.
If you want to find out more about our investment products, please visit sasfin.com