Time deposits: an opportunity for business capital

A company’s investments can take many different forms depending its projects, the market and the opportunities offered by the economic and regulatory environment. In view of this complexity, time deposits can offer a way to put temporarily unused cash to work – and more. Alberto Troian from Capital Markets at Banca Ifis explains more about this solution.

What is a business time deposit?

A time deposit is a type of interbank deposit in which a company deposits a sum of money with a bank for a specified period of time that may range from several months to several years.

The first time deposits did not allow funds to be withdrawn before the end of the deposit period. However, the instrument has evolved in recent years to include solutions offering greater flexibility alongside deposits with time restrictions. However, such flexibility comes at a cost in terms of return: lower interest rates paid to the customer.

The rate paid may be variable, i.e. linked to an index plus or minus a spread. In the European case, the index can be the Euribor rate for a defined period of one, two, three or up to 12 months, an average or the Ester (Euro Short Term Rate).

Why do companies use time deposits?

Time deposits allow companies to optimise working capital until it is needed in the production process or to maximise the return on capital until alternative investments closely related to the company’s development plans can be identified.

Reasons for companies to use time deposits can be summed up as follows:

Higher returns: time deposits normally offer higher interest rates than current accounts.
Temporary investment of excess liquidity, optimising company resources.
Financial planning: they can be used to fix the return on investment in advance.
Lower risk: time deposits are investments with a low risk profile. The risk of loss of principal is tied to the solidity of the bank with which the deposit is held. They are not subject to price fluctuations. At most, there may be an opportunity cost for longer periods if the interest rate curve inverts.

Find out more about our Time Deposit solution

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How do time deposits differ from other investment solutions?

Generally speaking, time deposits are safe, predictable investments and have few costs due to their simplicity and transparency.

Normally, the risks and returns of other types of investment vary over time; this is also the case for investments in government bonds, if they are liquidated before maturity.

By nature, time deposits have very low liquidity, characterised by the absence of a secondary market. However, depending on a company’s objectives, they can be excellent investments.

Advertising message for promotional purposes. For the contractual conditions of the Time Deposit, please consult the information sheet available at branches and on the Transparency section of the website www.bancaiﬁs.it.

22 April 2024