Corporate Finance Amidst the Return of Interest Rates; Redefining the Use of Online Banks

The era of long-standing zero/negative interest rates has ended, and Japan is now experiencing a daily life where interest rates have returned. While it is easy to be distracted by rising borrowing rates and increased procurement costs, there is another theme that managers of small and medium-sized enterprises should face squarely. That is the “operational efficiency of cash on hand” and the “review of payment/fund transfer costs.”
Corporate use of online banks has often been discussed in terms of convenience, such as “low transfer fees” or “the ability to make transfers at night.” However, now that interest rates have returned, its positioning has shifted toward becoming an active financial strategy tool.
This time, I will organize the points that business managers should grasp in this phase of change and practical ways to utilize online banks.

1; Changes in the Business Environment

During the period when interest rates were effectively zero, there were almost no situations where one would be conscious of opportunity loss even if corporate surplus funds were left in ordinary deposit accounts. This is because the returns were within the margin of error regardless of which bank they were deposited in.
However, there is now a clear gradation in deposit interest rates among financial institutions. While ordinary deposit interest rates at mega-banks and regional financial institutions are being reviewed, online banks are now offering around 0.5% to 0.8% for corporate time deposits, and in some cases, nearly 2% depending on campaigns or terms.
If you have 50 million yen in stagnant funds (operating capital buffers, tax reserves, etc.)…

• At 0.02% per year: Annual interest income is approximately 10,000 yen (pre-tax)

• At 1.00% per year: Annual interest income is approximately 500,000 yen (pre-tax)

The difference, which could be ignored until now, is becoming impactful enough to cover monthly cloud tool subscription fees or welfare expenses for several employees. As capital efficiency is being questioned, leaving funds in accounts that are virtually interest-free can be said to be generating actual costs.

2; Three Perspectives to Keep in Mind

So, how should you use/utilize online banks? You should focus on the following three points.

A; Role Division Between Main Banks and Online Banks

The most important thing to avoid is neglecting the regional banks and credit unions that have supported you so far, just because you are attracted to the appeal of interest rates/fees. For companies, regional financial institutions hold value that cannot be replaced from the other side of a screen, such as business evaluation/proper loans, and support for running alongside the company in the unlikely event of a deterioration in cash flow.

• In-person financial institutions (regional banks/credit unions): Fund procurement, main payments, long-term trust relationships

• Online banks:Enjoying interest on short-term surplus funds, cost reduction through large-volume monthly transfers, accounting automation via API integration

A solid approach is to build a multi-bank system that separates layers in this way, rather than pitting the two against each other.

B; Effective Utilization of Stagnant Funds by Color-Coding Funds

There is no need to move all cash and deposits; let’s break down the funds into the following three layers.

1. Payment funds (1-2 months’ worth):Accounts used for daily withdrawals and salary transfers (main)

2. Standby funds (3-6 months’ worth):Funds for which the usage time is known, such as tax reserves and capital investment standby funds (short-term time deposits or high-interest ordinary deposits at online banks)

3. Safety margin funds (6 months or more):Reserve funds and internal reserves (accounts that ensure liquidity while being conscious of yield)

By simply pooling funds that are scheduled to be used in a few months into online bank time deposits, you can secure returns without taking risks.

C; Back-office productivity

In addition to the benefits of interest rates, the “low transfer fees” and “SaaS integration capabilities” of online banks remain powerful. Even if the transfer fee to other banks is just 100 to 150 yen cheaper per transaction, for companies with hundreds of payments per month, this results in a difference of hundreds of thousands of yen annually.
Furthermore, by synchronizing in real-time via API with cloud accounting software such as freee or Money Forward, you can eliminate the time lag in statement acquisition and achieve faster monthly closing. In a rising interest rate environment, being able to instantly visualize your company’s cash position becomes a form of risk management.

3; Concrete action steps

There are three simple steps in the roadmap that your company should start working on tomorrow.

1; Visualize the [minimum level] and [average retained amount] of your deposit balance
Identify the volume of “idle funds” that consistently remain in your account based on your cash flow from the past year.

2; Open a corporate account at an online bank and position it as a sub-account
While being mindful of your relationship with your main bank, start by using it to consolidate transfer operations or as a pool for tax payment reserves.

3; Standardize fund transfer operations on a semi-annual to annual basis
Based on your cash flow plan, incorporate rules for periodic fund withdrawal/return into your internal regulations (accounting manual).

Conclusion: The return of interest rates is a great opportunity to review financial governance

In the era of zero interest rates, the main focus of corporate finance was avoiding cash shortages, and there was little incentive to put effort into where cash and deposits were kept. However, in today’s world where interest rates have returned, financial skill directly reflects on a company’s non-operating income/expenses and cash flow.
By redefining and utilizing online banks not just as transfer accounts, but as financial infrastructure that safely and agilely generates yields and productivity, you can increase your financial strength.
As a first step to catching the wave of change, why not start by reviewing where the funds sleeping in your company’s bank accounts are located? Arriba will surely be able to help you with that visualization!