27Jan
Contingency Planning for a Cash-Flow Crisis: Saving Accounts and Other Savings Vehicles
Posted by Marcel Sim in Finance & Capital
As an entrepreneur it can be all too easy to focus on making money and re-investing in your business, and neglect the prudent measure of developing some savings. Saving accounts can be an essential back up when you experience cash flow problems, a challenge that your business will inevitably face at some point. If you have yet to think about opening additional saving accounts to act as reserve finance for your business the most important thing is to act now – and this process need not take up a lot of time. There are a range of saving accounts and other savings vehicles that are easily accessible through retail banking. Here we will take a snapshot of the options typically provided through retail banking by looking at the saving accounts provided by Santander, one of the major players in the market.
The Instant Access Account offered by Santander is in many ways an ideal option for the small business. The instant access descriptor could be viewed as applying in a couple of ways, as this account is managed online, and so easily accessible in a hurry. This account also offers instant access to the cash within, without incurring any penalties for withdrawal. At the time of writing, the interest rate of 3.1% on offer for the initial deal period of 12 months is not far off what more restrictive savings vehicles can offer. This all means that this type of account should be used as reserve for at least a portion of your savings, as the accessibility of the money is perfect for dealing with temporary cash flow problems.
If you expect to have significant cash to park in a savings account in the near future you can look to develop more growth on the balance by locking the money away in a bond. As is typical of the market, the Fixed Rate Bonds offered by Santander deliver superior interest when compared with the Instant Access option, provided of course that you sacrifice the ability to get your hands on the cash before the term of the bond ends. Fixed rate bonds therefore present a more long term saving strategy, delivering better growth the longer you agree to keep the cash locked away. On the flip side, the inflexibility of the deal means that fixed rate bonds are definitely not suitable as your sole savings vehicle, as you will not be able to access the money early – before the bond matures – to address cash flow problems without incurring a penalty that will pretty much wipe out any growth that has been achieved.
Those that are registered as ordinarily resident in the UK for tax purposes can also look at the tax free savings options provided by the range of ISAs (Individual Savings Accounts). This type of account was introduced by the UK government to encourage citizens to save, offering tax free growth on balances up to a specified annual limit. For more information on ISAs and who qualifies to open these accounts, try looking at: www.hmrc.gov.uk/isa/faqs.htm.
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