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Deciding what cash solution to use for the operational requirements of your business can be daunting, whether you are looking at the best and safest way to maximise the use of excess cash, or the most appropriate way in which to manage the cash you need to keep ‘liquid’. There are a number of solutions available in the marketplace ranging from bank call and fixed term deposit accounts, to treasury solutions like cash management and money market instruments. So, how do you decide which is best for you?

The Treasury Services team at Capital International Group have more than ten years’ experience in managing client cash requirements. During this time, we have built up an understanding of what we believe are the key factors for consideration:

1. The ‘Peace of Mind’ Factor: The knowledge that your money is secure, with actively managed risk reduction measures being employed on a day-to-day basis. This incorporates the certainty of performance. Cash invested as cash on a ‘one-for-one’ basis with terms that pay a pre-agreed fixed interest rate, linked to a reference rate such as the relevant currencies central bank base rate, will ensure that you can accurately forecast investment income and performance. Whilst USD rates are increasing, it is still rare in the competitive marketplace to find a secure, liquid investment option which pays anywhere near the USD Fed rate of 1.25%. This is particularly true if the product in question comes with additional asset security in some form, however a return of 1% is achievable.

2. The ‘What are the Experts Saying?’ Factor:  Credit ratings agencies Moody’s, Fitch, and Standard & Poors remain the quickest and most reliable way to instantly assess the perceived credit quality of a financial institution or specific investment products (where rated). Without performing in-depth reviews of these products and institutions yourself, including full analysis of key financial indicators like assets and liabilities, there is no better way to readily get a feel for the viability of a product or a deposit taker. For example, a rating of AA+/S1+ (S&P) and above is equivalent to a stronger rating than those of almost all major global banks. This rating reflects a high quality investment option, with very low credit risk and the lowest sensitivity to adverse changes in market conditions.

3. The ‘Concentration Risk’ Factor: You will have heard of the saying, ‘don’t put all your eggs in one basket.’ This is very appropriate when considering which cash investment solution to select. You can find a bank in which to deposit your monies, but you are then 100% exposed to that bank. Ideally, you want a solution that provides a high level of counterparty diversification, selected using an independent investment mandate. In this way, you can ensure that the underlying are selected on merit, and without prejudice. For example, a product that offers an underlying investment portfolio of highly rated bank deposits also offers instant diversification without having to undertake the necessary work to open several bank accounts yourself.

4. The ‘I Like Dealing with You’ Factor: You work to live, you do not live to work – so why not ensure that your working relationships are helping to make your working life less stressful? Ensuring that your chosen service provider gives you access to a representative or team who are a pleasure to deal with, who operate with honesty and integrity and who believe in excellent customer service, can be that difference. When you choose a partner to hold or manage your cash assets, they should feel honoured to be selected by you; your custom is a privilege not a right- which is a fact that many service providers have lost sight of in recent years.

With these four factors in mind, we are confident that you will be on the right track toward finding a service provider who is a pleasure to deal with, is credible and trustworthy and offers high-quality cash investment solutions that meet your needs.

Feel free to contact me to hear more about the cash investment solutions that the Capital International Group can offer, in particular our US Dollar Capital Liquidity Account.

Thanks for reading.

Craig Dalton  CertICM, ACI DC, MInstLM
Senior Treasury Manager | Capital International Group
c.dalton@capital-cts.com