Business fixed-term deposits: lock only the cash you can leave alone

A fixed-term deposit can pay more than instant-access cash because the business agrees not to use the money for a defined period. The decision only works when the locked amount is genuinely surplus to payroll, tax, suppliers and the operating buffer.

Identify genuine surplus cash before comparing rates

Start with the cash-flow forecast. Remove the amount needed for payroll, tax, debt service, critical suppliers and a reasonable emergency buffer. Then separate known future spending such as equipment, annual insurance, VAT or a property deposit. Only money with no expected operating job during the fixed period should be considered for locking away.

A company with £500,000 in the bank may discover that £180,000 is required for the next two months of payroll and suppliers, £90,000 is earmarked for tax and £80,000 is needed for a planned machinery payment. In that case, only £150,000 is truly available for a longer savings decision. The headline balance is not the investable balance.

Match the fixed period to a realistic cash horizon

Fixed-term business deposits can run from months to several years depending on the provider. The business should choose a maturity date earlier than the point at which the cash may be required. Do not lock twelve-month cash because the twelve-month rate is attractive if the business could need the money for expansion in month eight.

Use the forecast and strategic plan together. If a lease break, tax payment, acquisition or refinancing event is expected within nine months, a twelve-month deposit can create a liquidity problem even if the business is profitable. The fixed period should sit comfortably inside the period of certainty, not exactly on the edge of it.

Compare the extra interest in pounds against the lost flexibility

Translate the rate advantage into cash. If a fixed deposit pays 0.60 percentage points more than a comparable easy-access account, the extra gross interest on £200,000 over one year is about £1,200, assuming the rate relationship and balance remain as modelled. That figure is the economic reward for giving up access.

Now compare £1,200 with the cost of needing the money unexpectedly. If the company would have to use an overdraft at a much higher borrowing rate for two months because £200,000 is locked, the savings advantage can disappear quickly. Fixed deposits work best when the liquidity forecast is strong enough that early access is genuinely unlikely.

Split large reserves across different maturity dates

Instead of locking all surplus cash for one term, create a maturity ladder. A business with £300,000 of genuine surplus might place £100,000 in a three-month deposit, £100,000 in six months and £100,000 in twelve months. When each tranche matures, management can decide whether to spend, keep liquid or reinvest.

This reduces concentration in one maturity date and gives the finance team regular access points. A ladder is especially useful when the company wants more return than instant access but does not have complete certainty about the next year's capital spending.

Check the authorised deposit taker before placing large balances

FSCS states that the deposit-protection limit is £120,000 per eligible person or entity, per authorised firm. Its protection checker confirms that current, savings and fixed-term deposit accounts can fall within the limit where the account and depositor are eligible. The limit applies at firm level rather than separately to every brand or account.

For a limited company or LLP, eligible business deposits can have protection in the business's own right. Sole traders are treated differently because personal and sole-trader deposits with the same authorised firm are generally combined. If large fixed deposits are spread across brands, check whether those brands share one banking licence before assuming protection has been diversified.

Plan what happens at maturity before the provider rolls the money

Record every maturity date in the treasury calendar and check the provider's instructions for maturity options. Some products may repay automatically, while others can roll into another term or default option if the customer does nothing. A maturity decision should be based on the current forecast, not on the choice made six or twelve months earlier.

Review the reserve three to four weeks before maturity. Ask whether the cash is still surplus, whether the rate remains competitive and whether the protection position has changed because other balances at the same authorised firm have grown. Treasury decisions should be renewed deliberately rather than allowed to repeat automatically.

Keep one treasury schedule showing every fixed deposit, provider, authorised firm, principal, maturity date and expected use of funds. That prevents a company from knowing it has £600,000 in savings while still being unsure which £200,000 becomes available next month and which £400,000 remains locked for another year.