Corporate Deposits and Negative Interest Rates

Is your company facing certain losses from keeping funds on deposit?

If you are a business owner and your company is currently sitting on deposits which are earning negative interest rates it’s worth considering the following.

Let’s take deposits in the amount of €500,000 at -0.5% interest and a five year time span. After five years on deposit this account would have a balance of €487,624 – a loss of €12,376 over the period.

Now consider the possible result if instead of leaving these funds on deposit the company invested them in unit linked funds containing equities and other assets such as bonds, property and alternatives. Let’s say that you don’t want to take much risk so you decide to allocate these to a Low to Medium risk fund which targets to make a return of 3% gross each year, or 2% net of the management charge.

 

The projected balance after five years is €552,040
Investment gain €52,040
Corporate Tax @ 25% (passive income) €13,010
Net gain €39,030

 

That’s a potential different of €51,406 on the result you would have gotten from deposits.

No exit penalties apply to this product so the funds are accessible at short notice in the event that the company requires them.

Making an investment like this can also help your company to avoid the close company surcharge on undistributed investment income. Corporate investments grow tax free for up to 8 years and are then subject to tax at 25% on the investment gain.

If you would like to discuss options for getting a return on your corporate deposits, feel free to give us a call on 01 546 1100 for a no obligation discussion. You can reach us by email to [email protected] or use the Live Chat facility in the bottom right corner of the screen.

 

The material and information contained on this website is for general information purposes only. Neither the writer nor Highfield Financial Planning Ltd makes any warranty as to the completeness, accuracy or reliability of the information or the suitability or availability of products or services, referred to on the website, for any purpose. You should not rely on any information contained on this website as a basis for making any financial, legal, taxation or other decision. The above post does not include all the considerations which are relevant to the topic discussed as to do so would render the post un-readable. When considering any financial issue you should seek the advice of a suitably qualified adviser.

© Highfield Financial Planning 1 April 2021

Warning: The value of your investment may go down as well as up. You may get back less than you invest.  

Warning: If you invest in this product you may lose some or all of the money you invest

Warning: This product may be affected by changes in currency exchange rates


Leave a Reply

Your email address will not be published.

Ready to get started?

To start making plans to secure your financial future, please get in touch by phone or email, or using this contact form.

    © Highfield Financial Planning 2021