If your company has retained profits and you have no immediate plans to use them, investing in a high-interest account or company bond is a great way to boost your funds.

High-interest rate accounts

Higher interest rate accounts enable you to earn more from your retained profits than would be possible from a regular business current or savings account.

However, in return for higher interest on your cash, you will typically need to leave your funds untouched in the account or bond for a set period.

As a rule, the longer the period, the more interest you’ll be able to earn. If you end up withdrawing the money early, you will likely face substantial penalties.

That’s why you need to consider how much of your retained profits you can safely invest in a fixed higher interest rate savings account.

Advice for contractors

As a contractor, you face periods of uncertainty. If you may need all your retained profits to keep your business afloat through tougher financial periods, tying up your funds in a fixed account could lead to further issues and higher costs down the line.

That’s why you must make sure that you set enough funds aside that are easily accessible to you before transferring any retained profits into a high-interest rate account.

If you’re planning your exit strategy, accumulating retained profits in a high-interest rate account can be an effective way of reducing your tax liability upon distribution of the company’s capital.

In any event, you should always seek independent financial advice before you make any significant investment decisions.

We have a wealth of experience in advising contractors just like you on the best use of their retained profits and can refer you to independent financial advisers who can help. If you’re struggling to work out what’s best for your business, speak to us.