Business term account: a complete guide to optimizing your cash flow

What is a corporate term account?

A term account (CAT) is an account that allows you to invest your surplus cash over a period of time to make it grow .

Also known as a time deposit (DAT), this is a savings product with the following characteristics:

• A fixed duration between company and bank

• The money is blocked until the set deadline. However, it is still possible for the company to make an early withdrawal, but this will incur penalties.

• The interest rate is fixed in advance . Account interest is therefore also known in advance.

• No risk of capital loss . Unless the bank goes bankrupt, you're guaranteed to get your principal plus interest back at the end of the contract.

• One-off payment. Unlike a traditional savings account, the capital is paid in a single lump sum when the term account contract is taken out.

The different types of CAT

There are different types of term account.

However, they all have one thing in common: the interest rate. guaranteed by the intermediate entity .

The yield is therefore also known in advance.

The fixed rate

As the name suggests, the rate is fixed and known in advance. This is the type of CAT most commonly used .

All interest and capital are paid in full. paid at the same time when the contract expires.

The progressive rate

From 2 to 4 years the commitment period for a progressive-rate term account is longer than with a fixed CAT .

The money is therefore immobilized over a longer period, making the prospects of return more attractive. Interest is paid periodically according to a predetermined schedule.

Adjustable rate

The interest rate here is variable . It is indexed to a financial index such as Euribor.

Yields may therefore rise or fall according to market conditions and the evolution of the chosen index.

What is the difference between a term account and a current account?

A current account is an account where the company deposits its funds and which enables him to carry out his daily transactions such as transfers, withdrawals, payments and direct debits.

Here are the main differences with a term account:

The purpose

The term account is a savings account.

It is used to grow surplus cash over a fixed period, thanks to the interest generated.

On the other hand, the current account is an account used to manage the company's day-to-day financial operations, with no return objective.

Fund accessibility

With a term account, the funds are tied up for a certain period of time . Early withdrawal is possible but subject to the payment of penalties.

On a current account, funds are available at any time and are at the company's free disposal.

Compensation

A term account is paid and allows capital to grow.

Current accounts are generally non-interest-bearing, except in the case of interest-bearing current accounts (such as Heropay's).

Duration

As its name suggests, the term account is open for a specific period . It is automatically closed at the end of this period. It may, however, be renewed.

The current account, on the other hand, is a permanent account. There are no deadlines. The account is open and available for as long as the company needs it.

Authorized operations

A current account enables you to carry out various operations, such as transfers, direct debits and payments. A term account is what is known as a passive investment .

The advantages of a corporate term account

Here are the main advantages of a corporate term account:

Security of funds

The capital deposited in a term account is guaranteed. It is a a risk-free investment unlike products such as shares on the stock market, for example.

Attractive interest rates

Since the funds are locked in, interest rates on term account contracts are generally more attractive. They vary from one institution to another.

At Boursorama, it is 3,5 % (18 months); 4.8% with Monabanq (5 years); 3.2% with Distingo (3 years) against only 3 % for the Livret A passbook, for example.

Flexible investment terms

You can also choose the term that best suits your needs and financial situation.

This can range from a few months to several years, depending on your availability.

It's an excellent way to grow a company's surplus cash.

Disadvantages of a corporate term account

Despite its many advantages, the corporate term account also has some disadvantages:

Limited availability of funds

Limited access to funds is the main disadvantage of the corporate term account. You can only fully dispose of the funds deposited with the interest earned at the end of the period stipulated in the contract.

So, before choosing this type of investment, make sure you have enough cash on hand. to avoid paying early withdrawal penalties.

No possibility of additional payments

During the term of the contract, even if your cash flow allows it, you may not be able to ou can no longer make additional payments.

3 factors in choosing a corporate term account

Here are 3 factors to consider when choosing a business term account:

The interest rate

This is the key factor to consider when choosing a business term account.

The aim of the investment is to grow the surplus cash available, rather than letting it languish in a current account.

The more attractive the interest rate, the more attractive the offer, as it allows you to make the most of your capital.

Generally speaking, compare the available offers and choose the one whose interest rate covers at least inflation.

Duration

The longer the term of the deposit, the more attractive the return prospects.

However, the company must be prepared to leave the funds blocked for the required period.

Between short-, medium- and long-term investments, it is better to choose according to the company's financial health .

In other words, you need to take the time to assess the company's liquidity needs before choosing the right term.

Terms and conditions

You should also check the following points before taking out a term account:

• Blocking funds . What are the penalties for early withdrawal of funds? Regardless of your company's current financial situation, in the world of business, the unexpected can happen.

• Minimum deposit amount . It can be higher or lower from one establishment to another.

• Fees, if any . Some offers include account opening or management fees (but this is rare).

Comparison of CAT pro offers on the market

Here is a comparison of 4 establishments offering CAT :

Steps to opening a business term account

Here's how to open a term account for your company.

The documentation you need

The documents required to open an account vary from one bank to another. The following documents are generally required:

• Company documents (Kbis extract, SIRET/SIREN number, company bylaws)

• Balance sheet (to assess the company's financial health)

• Executive documents (ID, proof of address, etc.).

• A document attesting to the availability of the initial deposit amount in the company's current account

• Proof of origin of funds to be deposited

The bank underwriting process

Here is a step-by-step guide to signing up for a bank account:

• Contacting the bank to find out what's available and to explain your company's needs

• Simulation to determine potential gains at the end of the operation

• Preparation of documents required by the bank

• Contract signature and validation. Take the time to check the various clauses of the contract before signing.

• Payment of funds via a transfer from the company's current account to the term account. The bank then sends a statement or certificate of deposit to confirm that the term account has been opened.

• Account monitoring through regular statements sent by the bank.

How is the CAT pro taxed?

Companies must declare interest earned on term accounts on their tax returns:

• 2065 tax return for companies subject to corporate income tax (Corporate income tax). Interest is taxed at 15% or 25%.

• 2035 declaration for sole proprietorships. Interest is included in the entrepreneur's taxable income, and is taxed at the progressive rate of personal income tax.

Interest must be integrated in the financial products category.

What are the ceilings?

Most financial institutions set a minimum deposit limit for opening a term account.

The minimum varies from €5,000 to €50,000 depending on the type of CAT and the establishment. Some offers dedicated to large accounts set higher minimums.

On the other hand, some establishments can also set ceilings based on their capacities. Progressive-rate CATs are generally the most affected by these limitations.

In addition, the Fonds de Garantie des Dépôts et de Résolution guarantees deposits up to a ceiling of 100,000 euros. It would therefore be wiser to not to exceed this threshold.

Think about diversify investments in the event of large cash surpluses.

Term account or other investments: which should you choose for your company?

Here's a comparison of the offers available on the market.

Comparison with business surplus accounts

There are various ways for a company to manage its surplus cash. Term accounts are a popular solution. However, the fact that the funds are blocked is often an obstacle that prevents companies from opting for this financial solution.

The professional surplus account thus appears as a more flexible alternative. These are a passbook-like account for individuals. In other words, available funds are remunerated.

Here's how it differs from a term account:

• Funds are available at any time . In this way, the company can dispose of it as it sees fit, without the risk of penalties.

• Yields are lower than for CAT. Interest rates are higher in CATs because the funds are locked in.

• Unlike term accounts, there is no no time constraints in a professional surplus account . There is therefore no minimum or maximum duration.

Like the CAT, business surplus accounts also offer a guarantee on the sums deposited . There is therefore no risk of capital loss.

Alternatives to consider

There are other investment alternatives for your surplus cash:

• The capitalization contract . The equivalent of life insurance for legal entities, this is an all-in-one investment product that allows you to invest in several products.

It has the advantage of being diversified and liquid. You can redeem all or part of the funds within 30 days. The potential return is 3 %.

• The SCPI or OPCI paper-stone. This involves buying shares in a company that owns real estate. With 5% yield It's a way of investing in real estate while delegating rental management.

This is where a risk of capital loss due to changes in the real estate and financial markets.

• Crowdfunding or participatory financing. This is a mechanism that consists of investing, along with other investors, in a project company via a dedicated platform.

Although offering a potential yield ranging from from 3% to 10%, it's an illiquid type of investment, and capital is not guaranteed.

To make your choice, you need to consider your company's financial health, your return objectives, your risk tolerance and your investment horizon.

Optimize your cash flow with the Hero interest-bearing pro account

At Hero, we offer you a pro account that combines the features of a current account with the advantages of a term account. More clearly, it is an interest-bearing account with the following features:

• Interest rate of up to 5% per annum, calculated daily and paid monthly

• Funds available at any time without penalty. So you're free to use it as you need it, with the assurance of earning a return based on the number of days deposited.

In conclusion, corporate term account is a short-term investment product designed to grow a company's surplus cash.

However, early withdrawal penalties are a risk you should consider before signing up. With Hero's interest-bearing account, you don't have to worry about withdrawal penalties, as the funds are available to you at any time.