Saving in a regular bank account or cash pooling: Which is the best option?

Most people don’t care about investments or savings. They just want their funds to be safe. For those who want to save, cash pooling and saving in a regular bank are two prominent options. So which one should you choose? To answer this question, let’s go into what both options are and what they offer.

Bank savings

Banks have savings accounts for customers who want to keep their money safely for short-term use. They offer some interest on the amount depending on withdrawal limits and similar terms. There are different types of savings accounts for customers. One is the high-yield savings account, which offers a relatively higher interest rate.

However, it comes with some strict restrictions to be able to collect the interest. Banks also require customers to maintain a certain balance to keep their accounts running. It is also one of the safest options because most central banks insure funds in a savings account up to a tangible amount.

The only con that most people may have is the low interest rate. But if you’re looking to keep money for short-term goals such as rent or buying a car, then this is an excellent option. Let’s get into cash pooling and how it differs from this option.

Cash pooling

Cash pooling is a completely different concept, even if it is a way to save money. It applies mainly to companies that pool their funds together in a shared bank account system. To make it easier to understand, consider Google, which owns different subsidiaries around the world. Instead of each subsidiary handling its finances, all the companies pool their funds in one account.

When one company needs money, it borrows, and those with surplus funds are able to help those smaller subsidiaries. Why is this important? Business operations can be expensive, and while it is possible to borrow funds from a bank, the interest does not come cheaply.

Imagine if a company has to pay back a loan with interest while it is still struggling with operational costs. This could well be the end of the business. So how does it work?

It is simple, really. Cash pooling is often an electronic process, and it happens more often than we know. The subsidiaries with more money deposit funds into the pool, and the poorer ones take what they need and bypass potential interest from loans.

Why is this a good option? For one, it is efficient. Funds can be transferred internally instead of sourcing funds externally. It saves the subsidiaries’ costs and helps them grow. Also, the parent companies, such as Google in this example, have a clear idea of where the subsidiaries need support. They can monitor the expenditure as well. The speed of the process is also much better since there is no bureaucracy involved.

Conclusion

The main difference between a savings account and cash pooling is that one is more suited to individuals, while the second favors companies. Choosing the best option depends on the purpose. Need to source funds quickly as a subsidiary? Then, cash pooling is a better option. Otherwise, a high-yield savings account is a better option.