At some stage in the cycle of growth, most businesses will find themselves holding surplus cash. This could be for contingency purposes, or because they are planning an investment in the near future and don’t want to tie up their money in long-term investments. Or it could be as simple as managing cashflow.
Whatever the reason, holding any significant amount of cash presents three main drawbacks.
The first is the ability to find a decent return, so that at least the cash holding is not eroded by inflation. With interest rates steadily falling, and the CPI remaining obstinately above the government’s target, this is an important consideration.
But perhaps an even more important factor is security. The banking crash of 2008/9 resulted in a much sharper focus on the protection offered by the government’s Financial Services Compensation Scheme (FSCS), which guarantees deposits should a financial institution fail.
The issue is that this guarantee is limited to £85,000 per institution; so if a business is holding more than that amount (in many cases, several times more), then that cash holding will need to be split between two or more financial institutions to benefit from the FSCS guarantee.
And that brings us to the third drawback: as anyone who has dealt with a bank or other financial institution will know, opening new accounts is now a very involved process due to anti-money laundering regulations. Having to repeat this onerous task several times to spread the cash across different institutions is complicated and time-consuming.
Fortunately, a new solution to that administrative nightmare is at hand, which gives access to a range of deposit accounts under one platform, with tools to enable investors to spread funds across multiple institutions to manage risk – and potentially earn better rates of interest at the same time.
This new avenue brings together various banks, building societies and other financial firms, and offers a single platform through which the investor can manage their cash holding.
This means that the investor only needs to go through the anti money laundering process once to gain access to all of the institutions on the platform.
Monitoring is then a simple process, as all of the different accounts are managed on one secure dashboard, allowing the investor to see the interest rate being offered, the balance and the term. They can easily move cash between accounts, ensuring both that they are achieving the optimum return and also that they remain below the crucial £85,000 limit for each one, as well as depositing more cash or withdrawing it as their circumstances dictate.
Because this also simplifies the administration process for the banks, they may be able to offer better rates on the accounts accessed via the Hub, balancing the small annual fee (0.25% of the balance maximum) charged to access the platform. A £50,000 minimum balance is required to access the cash hub; there is no maximum
The platform is an ideal solution for SMEs holding any significant amount of cash, giving access to competitive interest rates and diversified deposit options, all through a platform specifically designed with UK SMEs in mind.
Lovewell Blake Financial Planning can help you with the initial set-up of a Cash Management account, before handing it over to you to manage yourself – or we offer a managed service if you feel you would benefit from that support.