How Should a Business Invest Excess Cash Short Term

When a business finds itself with excess cash, it’s important to consider how to make the most of this temporary surplus. By making strategic short-term investments, a company can maximize its returns and ensure that its money is working for it. In this article, we will explore some smart ways for businesses to invest excess cash in the short term.

1. High-Yield Savings Accounts

One of the safest short-term investment options for businesses is a high-yield savings account. These accounts typically offer higher interest rates than traditional savings accounts, allowing businesses to earn more on their excess cash while still keeping it easily accessible. This is a low-risk option that provides liquidity and a modest return on investment.

2. Certificates of Deposit (CDs)

Certificates of Deposit (CDs) are another secure option for short-term investments. CDs offer higher interest rates than savings accounts, but require a business to lock in their funds for a set period of time. This can range from a few months to a few years, depending on the terms of the CD. While CDs may offer slightly higher returns than savings accounts, they do lack the same level of liquidity.

3. Treasury Bills

For businesses seeking a low-risk, short-term investment option, Treasury Bills are an attractive choice. These are government-issued debt securities with maturities of one year or less. Treasury Bills are considered one of the safest investments available, as they are backed by the full faith and credit of the U.S. government. While they may offer lower returns than other options, they provide a high level of security.

4. Money Market Funds

How Should a Business Invest Excess Cash Short Term

Money market funds are mutual funds that invest in high-quality, short-term securities such as Treasury Bills, certificates of deposit, and commercial paper. These funds offer businesses a way to earn a slightly higher return than a savings account while still maintaining liquidity. Money market funds are considered a safe and conservative investment option for excess cash.

5. Short-Term Corporate Bonds

For businesses looking to diversify their investment portfolio, short-term corporate bonds can be a good option. These bonds are issued by corporations and typically have maturities of one to five years. While they carry slightly more risk than government securities, they also offer higher returns. Businesses should carefully evaluate the creditworthiness of the issuer before investing in corporate bonds.

When deciding how to invest excess cash in the short term, businesses should consider their risk tolerance, liquidity needs, and investment goals. By exploring a combination of the options mentioned above, businesses can make smart decisions that will help them maximize their returns and grow their cash reserves. It’s important to regularly review and adjust investment strategies to ensure that excess cash is being utilized effectively.

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