Earn Interest on Business Cash: 7 Options

You can earn interest on business cash by putting surplus funds into savings, deposit or another short-term option instead of leaving everything in a current account. If you’re a business owner deciding what to do with your company’s cash reserves, compare the main options here.

Why Business Cash Shouldn’t Sit Idle

Business cash that sits in a non-interest-bearing account earns nothing, while inflation reduces its purchasing power over time. Even a modest rate adds up on a larger balance: €100,000 at 2.5% would generate €2,500 over a year before tax, assuming the rate stays unchanged.

Still, be sure to keep enough cash available for payroll, taxes, suppliers and other regular costs.

7 Ways to Earn Interest on Business Cash

1. High-Yield Business Savings Accounts

A business savings account holds surplus cash you don’t need for day-to-day payments and pays interest on the balance.

Earnings may be around 1%-2% a year, with some online business accounts offering higher promotional rates. The rate may change, and there can be rules on withdrawals, minimum balances and fees. Some providers also cap the balance that earns interest.

2. Business Term Deposits

A term deposit pays a fixed rate for a set period, often 3, 6 or 12 months. This works well for cash you don’t expect to need during the term. Your money is locked in, and early withdrawal may not be possible or could reduce your interest. 

If you need access to cash at different times, use a deposit ladder to spread your money across several investments with different maturity dates.

3. Treasury Bills and Other Short-Term Government Securities

Germany issues short-term government securities called Bubills, with maturities of up to 12 months. They are sold below their face value and repaid at full value at maturity, with the difference providing the return. They can work well for cash you don’t need immediately. You can sell them before maturity, but the price can change.

4. Money Market Funds

Money market funds invest in short-term assets, such as government securities, bank deposits and other debt instruments. They’re investment products, so the value can vary over time, but you can usually sell your fund units quickly when you need the money. The return can go up or down as market conditions change, so there’s no fixed rate or guarantee.

5. Cash Sweep and Cash-Management Accounts

A cash sweep is a cash management feature that automatically moves money you don’t need for day-to-day payments into an interest-bearing account or investment product. You set a balance to keep in your main account, and the provider moves any extra cash. The interest comes from the account or investment where the money is moved.

Be sure to find out where the money will be held, how quickly you can access it, what fees apply and what protection will be provided. 

6. Short-Term Bond Funds

Short-term bond funds have relatively short maturities. They can offer higher returns than some cash deposits, but the value of the fund can fall if interest rates, credit conditions or the wider market change. They make more sense for surplus cash you won’t need in the near future.

7. Interest-Bearing Business Accounts

Some banks pay interest on the balance, so you can earn a return without moving the money out of your day-to-day account. Unlike a savings account, this one allows you to make everyday payments and transfers.

Rates are variable, and providers may set balance caps, eligibility rules or different rates depending on the balance.

How to Choose the Best Way to Earn Interest on Business Cash

Start by splitting your cash based on when you expect to need it:

• Operating cash: Money for payroll, taxes, suppliers and everyday expenses should stay in your current account or another one with easy access.
• Cash reserve: Keep a separate buffer in a savings account or similar low-risk option that still lets you access the money when needed.
• Longer-term surplus cash: If you don’t expect to need the money for several months or longer, consider term deposits or investment products such as money market funds and short-term bond funds.

For each group, compare the following:

Keep near-term cash accessible and spread surplus funds across suitable options.

Is Business Cash Protected? 

Eligible business deposits with German banks are generally protected up to €100,000 per depositor per bank under statutory deposit protection. This applies to eligible money in current, savings and fixed-term accounts. 

Money market funds, government securities and bond funds are different: they are not bank deposits, so losses on the investment aren’t covered by deposit protection.

Is Interest on Business Cash Taxable?

Interest earned on business cash is taxable in Germany, but the tax treatment depends on the business structure and the product.

There are specific rules for corporations, and their income is subject to corporate tax. For partnerships, the income tax rules apply to the partners’ share of the business income.

When Paying Down Debt May Be a Better Alternative

If your business has outstanding debt, compare its interest rate with the return on surplus cash. If the debt costs more than the cash earns, an early repayment could reduce your overall interest costs. Also consider the tax treatment of both the interest income and the loan interest.

Keep enough cash for regular expenses and check the loan terms for any early repayment fees or restrictions.

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FAQ

How much business cash should you keep liquid?

Keep enough to cover upcoming bills, payroll, taxes and other regular costs, plus some for unexpected expenses.

Can a business earn interest without locking its money away?

Yes. Some accounts pay interest while keeping your money accessible, so you don’t have to tie it up for a set term.

What is the safest way to earn interest on business cash?

If keeping the money stable is the priority, a business savings account or term deposit is the simpler option. You give up some potential return, though, and a term deposit also means less access to the cash until it matures.