Could you be one of the many businesses missing out on “free cash”?
After over a decade of low interest rates, businesses have become conditioned to thinking there is little return on “cash in the bank.” The last 18 months have brought interest rates back into the spotlight, but with an obvious focus on the cost of borrowing.
But you might be missing an opportunity on the other side of this media attention. We recently spoke to our friends at Walker Crips Investment Management to understand where a balanced view can lead to a positive outcome.
Shane Bennett, Head of Investment Strategy, said:
“Companies commonly find themselves holding amounts of cash, sometimes substantial, often stashed away in low-interest bank accounts. However, with the evolving economic conditions, the perception of cash and assets with similar characteristics is shifting from a passive asset to a more investable asset class.
A significant development in recent times has been the surge in interest rates, skyrocketing from 0.1% in November 2021 to the current 5.25% in the UK. This shift opens the possibility for cash to generate attractive yields with minimal risk. It is crucial to note that even though keeping cash in low-interest bank accounts seems secure, it carries its own set of risks, such as counterparty risk, exemplified by the collapse of Silicon Valley Bank in 2023. It is therefore important to regularly assess your cash position to ensure that you are getting the most out of your money in line with your risk appetite.
The evolving economic landscape has led to the emergence of many low-risk investments that offer enticing yields, whilst actively utilising cash has become a strategic approach to enhancing business performance. Several attractive opportunities currently exist in the market, including options like gilts, which exhibit characteristics similar to cash investments. Many of these gilts are offering yields in excess of 4% at present, which can be a useful contributor to financial performance.
Given the current higher interest rate environment and the corresponding opportunities on offer, businesses must ensure that their cash is actively working for them. The challenge lies in dedicating the necessary time to identifying solutions that not only promise good yields, but also offer the required flexibility and liquidity. For companies struggling to navigate these complexities, seeking advice from an independent investment adviser could prove to be a useful opportunity to discuss whether your cash is being best utilised in line with your financial requirements.”
We must stress that it is not our position to give advice on this, but it’s an interesting subject to consider. If this is something of interest to you, we refer to Shane’s comments in the last paragraph of seeking advice from an independent investment adviser. If you would like to speak to Walker Crips in particular, please speak to your Ultimate Finance’s Relationship Manager or to our Partnerships team via partnerships@ultimatefinance.co.uk, who can provide their details.
