With the official cash rate at a historic low and annual inflation running at just 1%, it’s difficult for cashed-up businesses to find much return on their money. It’s not always easy for chronically time-poor small business owners to put aside the time the research their savings account options though – and that’s where CANSTAR can help.
CANSTAR’s deposit account star ratings report researches and rates the savings accounts on offer for cashed-up small businesses. We analyse the value of accounts against two savings profiles, being:
Business Accounts: Business Savers
This profile relates to business customers looking for a high interest savings account. To be eligible, the account must offer an interest rate of 1% or higher on a balance of $50,000.
Business Accounts: Cash Managers
This profile relates to business investors looking to earn interest on their money while retaining full account access. To be eligible, the account must offer an interest rate of 0.10% or higher on a balance of $50,000.
What interest rates can businesses earn?
When it comes to earning money on their cash savings, CANSTAR’s July 2016 star ratings assessment has found that based on the products researched:
- Business Savers could earn between 2.30% and 0.70% on a balance of $50,000, and
- Cash Managers could earn between 1.90% and 0.25% on a balance of $50,000
This is a far cry from even 2014, when CANSTAR’s equivalent research found that:
- In 2014, Business Savers could earn between 4% and 1% on a balance of $50,000, and
- In 2014, Cash Managers could earn between 3.5% and 0.1% on a balance of $50,000
Even with the relatively more modest 2016 rates though, it is a big variation between the lowest and the highest on offer.
Here are five key tips to making the most of the cash you have available to put into a business savings account.
Avoid savings account fees
The higher the level of fees you are paying on a savings account, the higher the level of interest you must earn to offset them. Healthy competition means that there are a number of fee-free savings accounts available so check out your options. Fee-free may not include extras such as ATM or cheque access, however the cost of including these options on a savings account may well outweigh the benefits.
CANSTAR’s 2016 research of 83 business deposit accounts found the following average fees across the savings accounts assessed.
|Account keeping fee||Direct Debit||Direct Credit||ATM withdrawal own network||Branch withdrawal|
|Branch Deposit||Cheque Withdrawal||Cheque Deposit||Internet transfer||EFTPOS Transactions|
Source: CANSTAR. Based on 83 business deposit products researched by CANSTAR for 2016 Business Deposit Star Ratings. Does not include all business deposit accounts on the market.
Don’t forget to sweep funds
Sweeping excess funds from your transaction account to your savings account on a regular basis can potentially help to maximise your return. Interest – if any – paid on transaction accounts is low, so shifting funds to a savings account when it’s practical can increase the amount of interest your funds earn. A sweep facility could be of assistance as they are designed to perform this automatically.
Compare business savings accounts
If your business doesn’t require instant access to the funds, you can afford to compare rates over varying investment terms. The extra choice means that you are able to chase the highest rate that will suit your business needs.
Ask about promotional/bonus rates
Financial service providers want your custom and they might just be prepared to pay promotional rates to win it. You will need to weigh up the cost of time involved in switching providers compared to the additional interest earned, however if you are investing a significant sum of money it may be worthwhile to chase promotional rates. You can compare current business savings account interest rates here.
Read the fine print
In particular, be aware that some savings accounts do not pay interest on the entire balance. Stepped or tiered interest, where the interest rate increases as the balance grows or varying interest rates are paid on each level of savings, are common. It’s important to consider the overall interest rate you will receive on your funds.
Business Savings Account Summary
|Avoid savings account fees|
|Compare accounts and terms|
|Ask about promotional rates|
|Read the fine print|
CANSTAR has researched and rated 83 business deposit products from 38 providers to determine which accounts offer outstanding value for businesses. You can compare business savings accounts here and compare business transaction accounts here.