Why are your savings sitting with your business bank?
Australians love the idea of a bargain and are increasingly embracing technology. It’s why online shopping has become so popular and why I’m surprised when I hear business owners saying that a particular bank ‘does their banking’.
There can be good reasons for consolidating a lot of your banking – namely lower costs and simplicity. But many business owners (often because they’re too busy to think about it) are costing themselves money by doing all their banking with the one bank.
The way to get the most out of the banks is to ‘cherry pick’. While a big four bank, or your local regional bank, might be a good place to go to get your business loan, credit cards, or merchant facilities, it may be a terrible place to deposit your cash (even for the short term).
The introduction of the Financial Claims Scheme following the global financial crisis levelled the playing field when it comes to the risk of not getting back money you’ve deposited in the bank. So as long as the amount is $250,000 or less, the Federal Government stands behind it and you can shop around.
Spend some time on banking comparison websites and take note of which names consistently come out on top.
We recently had a look at the rates offered by a selection of banks (see table). As you can see, the big banks and regionals are off the pace.
Take NAB’s Business Cash Maximiser Account as an example. It has a minimum balance to earn any interest of $10,000 and if you satisfy that it pays you only 1.3 percent. By comparison, ING Direct would (for the first six months) pay you 3 percent whatever your balance.
If you’ve regularly got just under $10,000 of cash on hand, that’s an extra $300 over the next six months for a small time amount of time spent opening the account, and you’ll continue to make money year in, year out. On larger amounts you could make thousands.
Rabo Direct and ING Direct also make it simple to open up term deposits (to take advantage of the higher interest rate) and funds can be transferred to your normal transaction account overnight.
If you’re a business owner with a self-managed super fund (SMSF), similar logic applies. Just because a particular bank is your business banker and home lender doesn’t mean you should have an investment account with the same bank. Besides, you might find setting up a new online account is easier than opening up an SMSF account with your main bank.
We’ve embraced technology in numerous aspects of our lives, but we’ve been slow on the uptake with online savings. Take the time to explore your options – it’s worth it.
Richard Livingston is a founder of Eviser (www.eviser.com.au). This article contains general investment advice only (under AFSL 469838).