As a business owner, it’s vital to stay open to different ways to grow your business. For example, investing in web development to create a well-designed website that keeps your business competitive in the digital age is always a good idea. A website serves as your digital storefront, helps attract more customers, and establishes your credibility online.
Another crucial way to grow your business is to make wise financial decisions, such as choosing where to park your business funds. You can opt for a traditional savings account or explore other possibilities, like a time deposit account.
A time deposit account is a financial product many banks offer. It requires leaving your money untouched for a predetermined period and allows you to earn substantial interest from your initial investment. This option can be very appealing if you’re looking into increasing funds for your business. However, you need to keep in mind several considerations, such as your business goals, available funds, and interest rates. They are critical to making the best choice, which can impact your business’s finances.
If you want to determine whether or not time deposit accounts are a good fit for your business, consider the following:
Your Business Goals
When it comes to any financial decision, one thing you must consider is your business’s short-term and long-term goals. It’s the same if you’re looking into opening a time deposit account. Before you head to the bank, assess your business’s current financial state and find out if you can afford to lock in some of your funds for a certain period of time. If the answer is yes, placing them in a time deposit account is one option.
On the other hand, if you think you’ll need regular access to your funds, a time deposit account might not be the best choice at the moment. Instead, opt for bank products that let you make regular deposits and withdrawals.
Your Business’s Available Funds
Another matter you need to think about before deciding on a time deposit for your business is how much money you can comfortably set aside without affecting daily operations. You must ensure that you have sufficient liquidity for ongoing expenses, as well as emergencies. If you foresee needing quick access to funds for unexpected expenses or opportunities, a time deposit may not be the best fit and a savings account might be a better option.
The Required Placement Amount
Aside from your business’s current funds, you also need to consider the amount banks require for time deposits. This usually depends on the bank and its financial products. Some banks accept amounts starting at ?1,000, while others can require as much as ?100,000. Do your due diligence and research financial institutions that offer flexibility in the amount you’re willing to invest.
The Duration of the Investment
You also need to think about the term of the time deposit, whether it’s for the short- or long-term. Depending on the bank, you can choose something as quick as a one-month term, or a five- to seven-year maturity period.
In either case, your funds will remain in the bank for the stated period. Unlike savings and checking accounts, you can’t withdraw them whenever you want or need. That said, once your account has reached maturity, you can withdraw the funds along with the interest it has earned. From here, you can choose to continue earning interest by extending another term; this additional term can be shorter or longer than the original.
As a business owner, you need to consider financial risks in all your investments so as not to cause disruptions in your operations. For those who want a conservative investment, time deposits may be a good choice. They’re considered low-risk investments because of their fixed term and rate. This means you’ll know exactly when your funds will become available, and you can predict the exact return on your investment. Such information can be very helpful if you plan for future expenses or investments.
Additionally, the deposited funds are insured up to a certain amount. Time deposit accounts are insured for up to ?500,000 by the Philippine Deposit Insurance Corporation (PDIC). Even if the bank unexpectedly closes down, the PDIC will pay your deposit insurance.
The Bank’s Interest Rates
One reason many business owners consider time deposits over regular savings accounts is that time deposits have higher interest rates. Funds in a time deposit account can earn up to 5%, depending on the term and amount. On the other hand, a high-interest savings account can only earn a little over one percent a year.
Even with this in mind, you still need to research current interest rates. Look for banks offering time deposit accounts with favorable interest rates to maximize your returns. Typically, these also have longer terms and ask for higher minimum placements. Time deposit accounts can be a valuable tool for managing your business’s finances. They also allow your idle funds to earn interest. However, you must consider what works best for your business and understand how time deposits may affect it. You also need to assess any potential disadvantages that keeping your funds in a time deposit account might bring. From here, you can make an informed choice that benefits your company’s financial health and success.