This blog is a significant variance from my normal monthly communications, which are usually spurred on by conversations with business owners in prior weeks.
This email concerns money sat in business bank accounts, earning no interest whatsoever.
We all know interest rates are at historically low levels but it’s worth checking what interest rate you are receiving in all of your business bank accounts. Then check the charges paid to your bank on these accounts. Impressive? Chances are you are getting ‘diddly-squat’ in interest and the charges on your account are rising.
Now consider rising inflation. The Consumer Prices Index has now reached 2.3%. This means that after bank charges, you need to get an interest rate of 2.3% just to maintain the real spending power of your money!
Simply put: leaving substantial amounts of money on deposit means you are guaranteed to make a loss in real terms. It’s not often we business owners invest in something which is guaranteed to lose money!
Yes, sure I get it – you need a buffer to fall back on in case of emergency. My comments aren’t aimed at this level of money, rather towards much larger amounts that have been sat around in your business bank account for quite some time.
Two examples particularly come to mind from recent weeks. I saw a director of one company who had over £500,000 on deposit for about 5 years. He referred to it as his “you never know money”. More recently, I met business partners who have over £1.5 million in their bank account at any one time.
Often, the advice is to invest in your company pension due to its tax efficiency but the issue here is it doesn’t give you, the business owner, the flexibility you want in terms of access to the funds. Besides, we are all really restricted as to the amount we can invest in pensions nowadays.
So what should you do?
It seems crazy, having worked so hard for your money, that you should let it lose some of its value whilst languishing in your business bank accounts. There are alternatives. If you are interested in making your money work harder, give me a call for a free consultation.
Gary Neild B.Sc.Hons. DipIP PFA