Business Term Deposits vs. High-Interest Savings Accounts: Which One is Better?
Every business—even newly launched start-ups—should have cash reserves set aside as an emergency fund or to cover unexpected expenses.
If you’re a business owner, you’ve likely heard of ways to grow these reserves. Two great options offered by Illawarra Credit Union are business term deposits and high-interest savings accounts. Depending on how and when you’ll need access to the funds, each option can play a key role in how you manage and strategise your business finances.
Not sure which one is right for you? No worries—we’re here to help break it down.
What is a business term deposit?
Let’s start with a business term deposit. You might have heard of this as a time deposit investment, and it actually is. For you to get a grasp of it, a business term deposit is a fixed-term investment; that is, you are agreeing with the bank to lock away a lump sum of your money for a set period that you also chose. This also means that you won’t have any access to your cash until the end of the agreed term.
And this type of investment comes with perks, one being you’ll know how much you’ll be getting after the set period because the interest rate is fixed too. At the same time, because the interest rate is fixed, you need not worry about market fluctuation, as it won’t have an effect on your earnings.
Now, depending on how you see it, it also has its disadvantages, where you cannot access your money, especially when you unexpectedly need it, and penalties will block you from accessing it early on.
What is a high-interest savings account?
On the other hand, there is what we call a high-interest savings account, or HISA. This is a bank account that also offers interest on your money but with a catch—you can access your funds at any time you need them. Because it’s out of the traditional way of earning money, some business owners are enticed by this idea of getting access to your money and earning interest at the same time.
As we’ve mentioned earlier, this type of savings account does not only give you easy access to withdraw your funds as often as you like and without any penalties; this type of savings account also rides along in the rising interest rate of the current market, benefitting your savings account especially if there is a higher return.
But that also comes with downsides, because these types of risks are something that might not be in your favour, like riding the tide of fluctuating market rates, thereby giving banks permission to adjust your rates at any time. And if your goal is to save your business funds meant to be spent for something your company needs, this might not be the best option for you, as it is prone to the temptation of withdrawing your money because of how accessible it is.
Which One is Better for Your Business?
The best option for your business will always depend on what is best for your business at the present and its goals in the future. Both types have their pros and cons, and as long as you choose the type that benefits your business, you can be confident that your money won’t get wasted.
However, if you feel like you still need a bit more information on which to choose, keep in mind that a business term deposit is best if you have cash that you won’t be needing in the near future because these can be used for a specific long-term goal for your company, such as expanding your business ventures.
On the other hand, a high-interest savings account is best if you need to have regular access to your funds as you use them for expenses like payroll or emergency costs. Because even if you withdraw the money, you can top it up at any time without the penalties, while still earning interest rates that rise with the stock market.
The Best Strategy? A Mix of Both
But really, the best way is to keep both options for your business. Have a separate lump sum of money that you can put on a business term deposit and another for a high-interest savings account so you can benefit from both types without thinking about the cons.
At the end of the day, what works for your business will depend on your decision as the owner because its stability and growth will only manifest if you make an informed choice in any situation.
