High-Return Corporate Investment Options: Where to Put Your Surplus Cash

This is a financial promotion and is intended to provide information, not investment advice.

For any business, managing surplus corporate cash is a critical aspect of maintaining financial health and driving growth. While keeping liquidity is essential to cover operating expenses and emergencies, holding too much cash in low-interest accounts can result in missed opportunities for generating higher returns. The challenge for corporate finance teams lies in finding the right balance between liquidity, security, and return on investment.

In this blog, we’ll explore several high-return corporate investment options and strategies that allow businesses to maximise returns on surplus cash while managing risk and maintaining flexibility. By identifying the best approaches for deploying excess capital, you can ensure that your company's resources are working as efficiently as possible.

1. Corporate Savings Accounts: Low Risk but Limited Returns

Corporate savings accounts are the most common option for holding surplus cash, primarily due to their low-risk profile and high liquidity. These accounts allow businesses to access funds quickly, making them ideal for emergency reserves. However, the returns on corporate savings accounts are typically low, often not exceeding inflation rates, which means that the purchasing power of your cash could diminish over time.

Pros:

- Liquidity: Instant access to funds for day-to-day business needs.

- Security: Funds are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000.

Cons:

- Low returns: Interest rates on corporate savings accounts are typically minimal, offering little opportunity for meaningful growth.

Best Use Case:

Corporate savings accounts are best suited for holding cash that needs to be readily available for operational purposes or emergencies but may not be the most effective option for surplus funds that could be put to work in higher-yield investments.

2. Money Market Funds: Stable and Accessible

Money market funds are a popular option for businesses looking for short-term, relatively low-risk investments. These funds invest in highly liquid, short-term financial instruments such as government bonds, treasury bills, and certificates of deposit (CDs). The return on money market funds is generally higher than that of traditional savings accounts but still modest.

Pros:

- Liquidity: Typically allow businesses to withdraw funds relatively quickly.

- Stability: Considered a low-risk investment option, especially when investing in government-backed securities.

Cons:

- Moderate returns: While higher than savings accounts, the returns from money market funds are still relatively low.

Best Use Case:

Money market funds are suitable for businesses that need easy access to cash but are willing to accept slightly higher returns compared to savings accounts. It’s a safe way to grow cash reserves with minimal risk exposure. However, there is a possibility that such a fund could fall in value.

3. Short-Term Corporate Bonds: A Step Up in Returns

For businesses willing to take on slightly more risk, short-term corporate bonds are a viable investment option. These bonds are issued by companies to raise capital and come with a fixed interest rate. Short-term bonds generally mature in one to five years, making them less volatile than longer-term bonds while still offering higher returns compared to savings accounts and money market funds.

Pros:

- Higher returns: Typically offer better interest rates than savings accounts or money market funds.

- Predictability: Fixed returns can be useful for financial planning.

Cons:

- Credit risk: Bonds carry the risk that the issuing company may default on its obligations.

- Less liquidity: Short-term bonds are less liquid than savings accounts or money market funds, meaning that selling them before maturity may result in a loss.

Best Use Case:

Short-term corporate bonds are ideal for businesses with surplus cash they won’t need immediately and who want to earn higher returns than traditional low-risk investments.

4. Peer-to-Peer (P2P) Lending: High-Yield, High-Risk

Peer-to-peer (P2P) lending platforms like easyMoney allow businesses to lend surplus funds directly to borrowers, such as property developers, bypassing traditional financial institutions. P2P lending can provide much higher returns compared to savings accounts or bonds, especially when loans are secured against property.

Pros:

- High returns: P2P lending often provides significantly higher yields than traditional investment options, with target annual returns between 5.5% and 7.5%, and up to 10% under certain circumstances (as of October 2024).

- Diversification: Businesses can invest in multiple loans, spreading the risk across different sectors and borrowers.

Cons:

- Risk of default: If a borrower defaults on the loan, the business could face losses, although platforms like easyMoney mitigate this by securing loans against property.

- Liquidity issues: P2P lending typically involves locking in funds for a fixed period, and early withdrawal may not be possible unless there is a secondary market.

Best Use Case:

P2P lending is suitable for businesses looking for higher yields on surplus cash and willing to take on slightly more risk. Platforms like easyMoney, which offer property-backed loans, help reduce risk while providing attractive returns.

5. Property Investments: Long-Term Wealth Growth

Commercial property investments are another way for businesses to grow their surplus cash, especially if they have a longer-term investment horizon. By purchasing commercial properties such as office buildings, retail spaces, or warehouses, companies can generate rental income while also benefiting from the appreciation of property values.

Pros:

- Capital appreciation: Property values tend to increase over time, offering long-term capital growth.

- Regular income: Rental income provides a steady cash flow. However, as with any rental property, the investors can experience periods of rental voids.

Cons:

-    Illiquidity: Property is not a liquid asset, and selling can take time.

-    Capital at Risk: Property can sometimes fall in value, especially in short-term.

-    Management responsibilities: Owning and managing property can be resource-intensive.

Best Use Case:

Property investments are ideal for businesses with significant surplus cash that can be locked away for longer periods, allowing them to benefit from both rental income and property appreciation.

6. Innovative Finance ISAs (IFISAs): Tax-Free High Returns

For individuals rather than businesses, Innovative FinanceISAs (IFISAs) offer an attractive way to invest in P2P lending and receive tax-free returns. While businesses cannot open IFISAs, company directors or shareholders can personally benefit from these accounts and invest their profits in high-return P2P lending opportunities.

Pros:

- Tax-free returns: Interest earned through an IFISA is not subject to income tax, making it an efficient investment vehicle.

- High returns: IFISAs often offer higher returns compared to cash ISAs or stocks and shares ISAs, particularly when invested through property-backed P2P lending platforms like easyMoney.

Cons:

- Risk of default: As with all P2P lending, there is a risk that borrowers may default, though property-backed loans can mitigate this risk.

- Liquidity: Accessing funds early may be difficult depending on the terms of the loans in the IFISA.

Best Use Case:

While not available for businesses directly, IFISAs are an excellent option for corporate directors or shareholders looking to personally invest surplus cash from dividends or profits in a tax-efficient manner.

7. Business Expansion and Reinvestment: Low-Risk, High Potential Returns

Sometimes, the best way to invest surplus cash is by reinvesting it back into the business itself. This could involve expanding into new markets, upgrading equipment, or funding research and development (R&D). Reinvesting in your company often provides the best return on investment, especially if it drives growth and profitability.

Pros:

- Complete Control: Reinvesting gives you direct control over how and where the funds are used, allowing you to focus on initiatives that can directly boost profitability.

- Business Growth: Reinvesting in your business could lead to substantial growth through new products, increased market share, or improved operational efficiencies.

Cons:

- Risk: Expanding the business or investing in new projects always carries risk. If these ventures don’t succeed, the business could face a loss.

Best Use Case:

Reinvesting is ideal when your business has clear growth opportunities and proven success models. It's particularly suitable when the business has surplus cash and strong liquidity to support both expansion and operational expenses.

8. Short-Term Investment Funds: A Flexible and Yielding Solution

Short-term investment funds allow businesses to invest in a variety of low-risk, interest-generating financial instruments such as government bonds and certificates of deposit. These funds offer liquidity and flexibility, while providing higher returns than traditional savings accounts. Short-term funds are designed for businesses looking for flexible investment options where cash can be accessed with little notice.

Pros:

- Flexibility: These funds can be structured to allow businesses to withdraw funds quickly if needed.

- Moderate Returns: The returns are often higher than those of corporate savings accounts, offering businesses a low-risk option for growing their cash reserves.

Cons:

- Lower Yield: The returns, while better than savings accounts, are typically lower than other higher-risk investments like P2P lending or equities.

Best Use Case:

Short-term investment funds are best suited for businesses that require flexibility and are looking to preserve liquidity while earning modest returns on surplus cash.

9. High-Interest Notice Accounts: Better Rates with Limited Flexibility

High-interest notice accounts offer a middle ground between corporate savings accounts and more complex investment products. These accounts typically offer higher interest rates than traditional corporate savings accounts in exchange for committing to a notice period before accessing the funds. This means businesses need to give advance notice (typically 30, 60, or 90 days) before they can withdraw cash.

Pros:

- Higher returns: Interest rates are typically higher than regular corporate savings accounts.

- Security: Notice accounts are typically low-risk, offering stability for surplus funds.

Cons:

- Limited Liquidity: You need to give advance notice before accessing the funds, which could be a disadvantage if you require immediate access to capital.

Best Use Case:

Notice accounts are best suited for businesses with surplus cash that they don’t anticipate needing in the short term but want to keep readily available within a few months.

10. Diversified Investment Portfolios: Spreading Risk and Maximising Return

Building a diversified investment portfolio can help businesses minimise risk while maximising returns on their surplus cash. A diversified approach involves spreading funds across a mix of asset classes, such as bonds, equities, P2P lending, and property investments. By diversifying across multiple assets, businesses can reduce the overall impact of losses in any single investment. While diversification doesn't eliminate risks entirely, it offers the potential for other investments to compensate for any underperforming assets, helping to stabilise returns over time.

Pros:

- Reduced Risk: By diversifying across different asset classes, businesses can protect themselves from significant losses in any single market.

- Customisation: A diversified portfolio allows businesses to tailor their investments based on risk tolerance and liquidity needs.

Cons:

- Complexity: Managing a diversified portfolio requires expertise, time, and resources to ensure it’s effectively balanced.

Best Use Case:

A diversified portfolio is ideal for businesses looking to maximise returns on surplus cash while balancing risk and liquidity. It’s particularly useful for businesses with a long-term investment horizon.

Conclusion

Effectively managing surplus corporate cash is essential for maximising business growth and financial health. While traditional corporate savings accounts provide liquidity, they often offer limited returns. By exploring high-return corporate investment options such as P2P lending, short-term bonds, property investments, and diversified portfolios, businesses can significantly improve their returns on excess capital.

At easyMoney, corporate investors have the opportunity to invest in property-backed loans through P2P lending, offering higher returns and diversification. With target annual returns between 5.5% and 7.5%, and up to 10% under certain circumstances (as of October 2024), easyMoney's platform provides an attractive alternative for businesses looking to optimise their surplus cash while mitigating risks through secured property investments.

Ultimately, the right investment strategy for your business will depend on its financial goals, liquidity needs, and risk tolerance. By carefully considering these factors, your business can transform surplus cash into a powerful tool for long-term growth and stability.

Past performance is no guarantee for future results.

Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.