Generate returns with surplus liquidity.

In negative interest rate periods, surplus liquidity in the form of high cash holdings will mean costs. This is why companies would do well to rethink their strategy for managing liquidity. Targeted investment of liquidity provides interesting alternatives to a bank account.

Reduce additional costs of a bank account

Companies that build up their liquid assets during good periods can often benefit from this later, such as by making provisions for when times are harder, or to have immediate access to cash if a strategic opportunity arises unexpectedly. Therefore, retaining profits is a time-honored, popular option for many SMEs as well.

 

But historically low interest rates are posing a new challenge to many companies: If money remains in the account, negative interest is applied once a threshold is reached. This means additional but avoidable costs. That is why it pays to find alternatives to cash in the case of funds that are not needed for operations.

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05/10/2022

Optimize surplus liquidity with financial investments

Financial investments in business assets can offset the adverse consequences of negative interest rates. First, the exact amount of surplus liquidity in the company is defined. This depends on various factors, such as the liquidity requirements for general business performance, the distribution policy, the capital requirements for planned investments, or the necessary strategic and operating reserves.

 

The investment strategy can then be selected. Here, it is important to take account of the special characteristics of such investments as well as the differences between these and private investments. Investment decisions involving business assets should follow internal investment guidelines that factor in business performance and corporate goals. Of further note are comprehensive bookkeeping obligations for each transaction and the tax differences with private investments. For example, capital gains are not tax free for business assets, but losses carried forward can be balanced out with any profits for up to seven years. 

Investment opportunities to optimize liquidity and costs

These include, for example, dual currency deposits, which are particularly useful for international companies. They eliminate the costs of negative interest and take account of the company's currency needs. The currencies used should be the ones needed by the company in order to generate maximum benefits.

Defensive funds do not require much time for companies and help to compensate for negative interest.  For the mid-term, they provide an opportunity to generate small profits with low risk. These products give investors access to institutional investment opportunities that an individual would not be able to acquire.

These options offer the full spectrum of investment solutions to companies. Experts invest the excess liquidity flexibly according to the company's individual risk/return requirements. A strict and sustainable investment process is applied while taking various sources of return into consideration. This provides an opportunity to achieve returns with careful risk monitoring and thorough risk management.

There are special requirements for investments of excess liquidity

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