Choosing the best business bank account: Savings vs. term deposits

Overwhelmed by the choices between a business savings account and a term deposit for your company? Should you focus on a flexible account for immediate needs or a longer-term investment for future growth? Are you comfortable with fluctuating interest rates, or do you prefer the stability of a fixed return?

Thriday understands how confused you are right now.

Making the wrong choice can hurt your business' finances.  But don't worry, we're here to help! This blog will make business savings accounts and term deposits easy to understand, so you can choose the best one for your company's needs and goals.

Understanding the basics

Term deposit accounts

Term deposits function like a financial time capsule. You deposit a specific amount for a predetermined period, typically ranging from months to years. In return for committing your funds, you receive a fixed interest rate that's generally higher than a savings account. This predictability is ideal for businesses that have surplus cash they can confidently set aside without impacting daily operations.

Savings accounts

Business savings accounts offer flexibility and liquidity, allowing businesses to access their funds whenever needed. These accounts typically have lower interest rates compared to term deposit accounts. However, they are useful for managing daily operations, such as paying bills and receiving payments.

Some savings accounts offer higher interest rates, especially for larger balances. These accounts can be tailored to suit the specific needs of a business, making them a versatile option for managing funds. Even small businesses can benefit from having a savings account to maximise their financial resources.

Comparing business savings accounts vs. term deposits: A deeper dive

Understanding the nuanced differences between these two types of accounts is key to optimising your business finances. Let's delve further into their unique advantages and potential drawbacks.

Term deposits let you secure growth but at a cost of flexibility.

Term deposits shine when it comes to generating interest. By locking away a lump sum for a set period (months to years), you secure a fixed interest rate that's typically higher than what savings accounts offer. This predictable return can be a powerful tool for long-term financial planning.

For more details on selecting the right interest options, explore interest-bearing accounts for small businesses.

Moreover, the added security of a government guarantee (up to $250,000 per account-holder per institution) makes term deposits a safe haven for your funds. Term deposits generally have no ongoing account fees or transaction limits, providing transparency and predictability.

However, there are trade-offs:

• You cannot withdraw your funds before the term matures without incurring a penalty. This loss of liquidity can be a significant drawback for businesses that may need quick access to their cash.
• Early withdrawal penalties can eat into your earned interest, negating some of the benefits of a higher rate. It's crucial to thoroughly understand the terms and conditions before committing to a term deposit.

Savings accounts are more than just access.

Business savings accounts provide the freedom to withdraw and deposit funds as needed, making them ideal for managing everyday transactions, covering unexpected expenses, or seizing new opportunities. Many business savings accounts offer like Thriday features like online banking, automatic bank feeds, and expense tracking tools, streamlining your financial management.

Above all, they are consumer-focused. Financial institutions are often rated based on their overall value to consumers, ensuring businesses get fair terms and competitive rates.

But keep in mind:

• Unlike the fixed rates of term deposits, savings account rates can fluctuate based on market conditions. This unpredictability can make it challenging to forecast your earnings precisely.
• Some business savings accounts come with monthly fees, transaction fees, or other charges. Be sure to review the fee schedule carefully to avoid unexpected costs.

Which account aligns with your business goals?

Choosing the right financial product for your business is like selecting the right tool for the job – it needs to be fit for purpose. Whether it's a business savings account or a term deposit, the ideal choice should align seamlessly with your specific business goals and financial strategy.

Questions to guide your decision

Before you begin your search, take some time to reflect on these key questions:

• What's your financial objective? Are you primarily interested in preserving capital and ensuring liquidity for day-to-day operations? Or are you focused on generating a higher return on surplus funds over a longer period?
• What's your risk tolerance? Are you comfortable with the possibility of fluctuating interest rates, or do you prefer the security and predictability of a fixed return?
• What features do you need? Do you require online banking, mobile access, or integration with accounting software?  Would you benefit from features like transaction alerts, budgeting tools, or multiple accounts for different purposes?
• What are the fees? Carefully review the fee structure of each account, including monthly maintenance fees, transaction fees, and any penalties for early withdrawal (in the case of term deposits).
• What's the minimum balance requirement? Can you comfortably maintain the minimum balance required to avoid fees or earn bonus interest?

Thriday's business banking platform is designed to cater to a wide range of business needs and financial goals. With features like competitive interest rates, user-friendly online banking, expense tracking tools, and integration with popular accounting software, Thriday can be a valuable asset in your financial toolkit.

Whether you're focused on short-term profitability, long-term growth, or a combination of both, Thriday offers various options to help you achieve your financial objectives.

Try Thriday for free: https://app.thriday.com.au/signup.

Conduct thorough research

Once you've clarified your needs, it's time to shop around and compare different options.

• Compare interest rates: Look for accounts that offer competitive interest rates aligned with your chosen product (variable for savings accounts, fixed for term deposits). Be sure to factor in any introductory rates that may expire after a certain period.
• Review product disclosure statements (PDS): The PDS is a crucial document that outlines all the terms and conditions of the account, including fees, interest rates, and withdrawal terms. Read it carefully to understand the full picture.
• Consider additional features: Evaluate the convenience and functionality of online banking platforms, mobile apps, and any integrations with accounting software that may be available.
• Seek professional advice: If you're unsure which account is right for you, don't hesitate to consult with a financial advisor. They can provide personalised guidance based on your specific business needs and financial situation.

Conclusion

Choosing the right business savings account or term deposit is a strategic decision that can significantly impact your company's financial health and future growth. By taking the time to understand your needs, compare options, and seek expert advice when needed, you can make an informed choice that empowers your business to thrive.

Remember, your financial goals may evolve over time, so it's important to periodically reassess your chosen account to ensure it continues to meet your changing needs. Stay informed about market conditions and interest rate trends to make adjustments as necessary and maximise your financial returns.

Frequently asked questions

Can a business account be a savings account?

Yes, there are specific business savings accounts designed to help businesses earn interest on their idle funds while still maintaining access for day-to-day operations.

Can I use a regular savings account for my business?

While technically possible, it's generally not recommended. Business savings accounts often offer features tailored to businesses, like higher transaction limits, expense tracking tools, and integrations with accounting software.

Which type of savings account is best?

The "best" type depends on your specific needs and goals. If you prioritise easy access to funds, a high-interest savings account might be suitable. If you have surplus cash you won't need for a while, a term deposit could offer higher returns.

What is better than a term deposit?

Alternatives to term deposits could be high-interest savings accounts for liquidity or other investment options like bonds or managed funds for potentially higher returns (but with increased risk).

Do term deposits pay interest monthly?

Interest payments can vary. Some term deposits pay interest at maturity, while others may offer monthly, quarterly, or annual interest payments.

What happens when a term deposit matures?

You have a few options:

• Withdraw: You can withdraw your initial deposit plus the earned interest.
• Reinvest: You can roll over the matured amount into a new term deposit, potentially at a different interest rate.
• Partial Withdrawal: Some banks may allow you to withdraw a portion while reinvesting the rest.

It's crucial to understand the terms of your specific term deposit to make the best decision when it matures.

What is the difference between a business savings account and a transaction account?

A business savings account is designed for storing money and earning interest, while a transaction account (or checking account) is meant for everyday banking activities like paying bills and receiving payments. Transaction accounts typically don't earn significant interest.

Can I lose money in a term deposit?

You won't lose your initial deposit in a term deposit, as long as it's held with an authorised deposit-taking institution (ADI) covered by the FCS. However, you could lose potential interest earnings if you withdraw funds early due to penalties.

Where can I find the best business savings rates?

You can compare business savings rates from various providers using online comparison tools like Canstar or Finder.

‍