While it’s important to keep a constant eye on your small business’s cash flow, it’s equally important to invest in its long-term financial health to build a financial buffer, save for investment projects, or just have the peace of mind you see Money set aside for a rainy day.
In 2022, individuals and businesses have had to deal with rising inflation and interest rates, as well as the unexpected costs of keeping business going through various stages of load shedding. As they respond to short-term pressures, many small business owners may have lost sight of the long game made possible by saving money in a term account.
“Building financial health for your business takes time, careful planning, and a clear strategy while balancing your business’s day-to-day needs with its long-term financial goals,” said Natisha Lazarus, Sasfin’s head of business banking.
Small business owners have several products to choose from, but the number one rule is to understand the terms of whatever savings or investment product you choose to avoid complications when your small business needs access to those funds, she says.
“An effective savings strategy that includes different types of savings products gives small business owners the long-term benefits of interest-bearing funds being set aside to meet business goals while still having access to their money in emergencies,” explains Sanjeev Bessar, who has a specific mandate has to empower small businesses at Sasfin.
He advises small business owners to look for an overdraft product that suits your business needs, with a bank that offers personal expertise and advice to support your business skills and abilities.
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These are the options you can choose from:
Pay attention to deposit accounts
A termination deposit gives you the flexibility you need to access your money while rewarding you with a higher interest rate if you save your money longer. For example, an account with a notice period of 32 days offers a nominal interest rate of 7.50%, while an account with a notice period of 120 days offers a nominal interest rate of 8.05%.
Different length notice periods are available to meet the needs of any small business. Lazarus points out that interest rates are linked to the prime rate, which means that if that rate is raised by the Reserve Bank and your principal is guaranteed, interest income will increase.
You can add additional funds to these accounts at any time, and since interest is paid at the beginning of each month, the funds also benefit from compound interest.
“Flexibility and control over your savings commitments allow you to manage your small business’s working capital,” adds Bradley Reddy, who leads the mid-market client segment at Sasfin Business Banking.
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fixed deposit accounts for a financial buffer
A fixed deposit account requires payment of a certain amount for a set period of time, which helps small business owners meet their savings goals while offering relatively higher interest rates.
For example, a 6-month fixed-term deposit account offers a nominal interest rate of 7.58%, a 36-month fixed-term deposit account even 8.7%. Over time, compound interest means that the APR for this product could be 9.90%.
“Many of our customers choose a 12-month term deposit product because it gives them the balance of getting a better interest rate for longer savings and having access to their savings as part of their future business planning,” explains Reddy.
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An overnight deposit account gives small business owners the flexibility they need to have instant access to accumulated funds while allowing them to add funds whenever they can. The prime-linked nominal interest rate of 6.95% lets your saved money grow, since the interest is paid out at the beginning of each month.