The previous post briefly covered the complexities and risks associated with investing excess cash funds.  Another important issue with investing funds is the accountability to the general public as well as the donors to your organisation.  There is no quicker way to adversely impact the reputation of an organisation than through bad investment decisions.  As such, when looking at developing an investment strategy your board could take a view that the best way to invest funds is to keep it relatively simple and easy through the use of term deposits.  By undertaking this approach it addresses the 5 points listed in the previous post.

Furthermore, another important benefit of this approach is that you have control over your funds and the capital is guaranteed.  Even though the funds may be “locked away” in a term deposit most banks will still allow you to access the funds at the expenses of losing some of the interest that could have been paid.  Certainly a much better option than being forced to sell shares at a significant loss due to a financial crisis.

If the profit and loss and cash flow budgets have been prepared then it should be relatively easy to identify the cash requirements over the next 3, 6 or 12 months.  This then identifies how much you could place in a fixed term deposit.

A quick check of the major banks shows that they pay around 3% to 4.5% for term deposit from 30 days to 12 months and for amounts starting as low as $5,000.  When most transaction accounts pay hardly any interest at all it makes good sense to open and term deposit.

The purpose of this and the previous post was to discuss some of the risks associated with a complex investment strategy as well as to highlight that excess cash can still be invested in term deposits that can provide a reasonable level of return without the risk.  Therefore, if your organisation has excess cash then consider this simple yet effective investment approach.