What To Do Today With Your Business’ Idle Cash

stacking coins
Ben Verschuere - Chief Investment Officer
March 8, 2022

Cash management has never been as important as it is today. On one hand inflation is now hitting 7pct, eating some of your precious business cash reserve purchasing power every day. Like ice in the sun, your capital is melting fast. On the other hand,  in order to combat those price pressures, the Federal Reserve is soon to embark on a rate hiking cycle. Given the current environment, you might rightly be wondering what you can do to act as a steward of your business’ idle cash… Surely there must be a good option out there, let's look at different solutions available …

Bank Account: No yield

The first and obvious solution is the do nothing approach: leave the cash at your bank and earn the meager interest (or should we say crumbs) that it is willing to give you. With inflation running as high as it is, this isn't a sustainable solution. Even more, the Fed is soon to increase its interest rate.  As the chart below shows from the past hiking cycle, banks don't like to share that rate increase with their customers as they (surprise, surprise…) prefer to keep that money for themselves. At the moment the average checking account rate is 0.03% (as per FDIC data).

During the last Fed hiking cycle the bank deposit rate only when up to less than 0.75% as compared to the Fed Fund rate at 2.75 (Data: Bloomberg)

CDs: locked up without much yield

The next solution is a variation of the first one: Putting your money in a Certificate or Deposit (CDs). CDs are a bank product whereby the bank agrees to pay a higher interest rate in exchange for keeping that money locked for a certain duration of time (3, 6, 12 months). While they provide a slightly better rate they also lock up your cash for some time. Thanks but no thanks… especially given their rate isn't amazing either. Bank CDs are currently yielding 0.14%* for a 6 months lockup.

Treasury bonds: Either locked up or with some market risk

Crossing the chasm of cash products toward market securities come the Treasury bonds. These are bonds issued by the US Government and thus are relatively safe. With the Fed soon to hike rates, the yield on Treasury bonds has started to increase. For example a 6 month Treasury bond currently yields 0.62%*. While Treasury bonds could be a better option than both CDs and leaving money in the bank, they also come with some potential downsides. First, they require you to have a brokerage account to trade them. Second, given these are market securities, they involve some daily movement in price (given the price of Treasuries moves on a daily basis, as shown below) and/or locking yourself up for the maturity of the bond to avoid potential loss.

Had you invested in a Treasury bond maturing in August this year you would have lost so far close to 0.50% on your principal (Data: Bloomberg)

Corporate bonds: More complex and more risk

Moving deeper into the market securities option, another available alternative is corporate bonds. These bonds are issued by corporations to borrow money in exchange for paying interest on them. Trading individual bonds is even more difficult than trading Treasury bonds, so it isn't a real solution for most. But fortunately there are mutual funds and ETFs which are a portfolio of corporate bonds and make trading of corporate debt much easier. Unfortunately, this too requires setting up a brokerage account and also more importantly holding the ability to select the appropriate mutual funds; there are literally 1000s different credit mutual funds to choose from so this isn't an easy task at all.

Crypto: Due diligence required

Even further on the risk spectrum there are now crypto yield products. The yield is generated via lending crypto asset in exchange for an interest rate. The yield on these might be appealing but these are still young financial products and thus still quite opaque. Given the nature of the crypto landscape it is important to do some due diligence on these products in order to properly understand the risks involved.

Treasure: Easy and with higher returns

Or there is Treasure… We make cash management simple. With your Treasure Reserve account you have a cash allocation (Treasure Cash) that currently generates up to 0.50% (15x more than what you earn at your bank) with daily liquidity and FDIC insurance up to $2.5 million. We also provide a high yield allocation (Treasure High Yield) with a yield of 3.25%** allocated to corporate bonds which we manage internally so you don’t have to do anything. Even better it only take 15 minutes to onboard on our platform (here). Now you have a simple solution to generate meaningful revenue from your idle cash! Any questions: sales@treasurefinancial.com

*Source: Bloomberg

**Based on the current yield of the funds offered by Treasure as of 12/31/2021. Source: Bloomberg

Ben Verschuere (ben@treasure.tech)

Chief Investment Officer

Treasure Investment Management, LLC

Disclaimer: The views and opinions in this piece are just the author's own, offered to the public at large and not to any one particular investor.

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