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Bigger Bang for Idle Bucks

Most marketers are savvy enough to have idle cash invested nightly in interest-bearing accounts through sweep investment accounts. But, did you know you might be able to earn a higher rate of interest with more specific money management?

All national and regional banks plus most statewide banks have investment departments that can help you tremendously increase the earnings on your idle funds. You can typically add another three to five points to your earnings. One of the better and yet little known investment opportunities is in credit card investment pools.

Every institution with customer credit card services needs underlying money invested to fund those debts. Because credit card debt carries unusually high interest rates compared with mortgage or other type debt, the earnings potential to investors in credit card pools exceeds many similar investment tools which is what allows you to earn that three to five point advantage over CD’s and sweep accounts.

The availability and terms for credit card pools varies from bank to bank. Any company that keeps large (over $100,000) amounts of cash for at least a week at a time should be looking at investment alternatives including credit card pools. Heating fuel companies that offer budget billings and stockpile cash before the winter season are particularly good candidates. To know if your company’s cash flows are a good match for alternative investments such as credit card pools, request a visit from your bank’s investment department.

When you have your appointment with the bank investment representative, be sure to have them explain each investment’s risk. Most high yielding portfolios are subject to risk, and it’s important for you to understand how your investment behaves under adverse financial conditions and normal market fluctuations. Particularly if you must retrieve your funds on certain days (for instance your fuel tax payment day each month), you will not have the flexibility to ride out any downturns in value.

Before investing, make sure you understand typical market changes that could impact your investment results. For instance, if interest rates rise or fall, will your principal be affected?

Look at historical returns for similar investments. Most banks have been offering alternative investments, many through their trust departments, for decades. They can easily provide you long-term earnings and total return data. By studying this data, and particular peaks and valleys with their causes, you can determine if the investment you are considering is a good risk match for your company’s risk tolerance.

If you decide to invest in a credit card pool or other investment where your principal could be at risk, begin small, and know your investment strategy and timing. Your bank’s professional investment adviser should be there to help you every step of the way. Because you will be relying on their expertise and advice, be sure you get a seasoned veteran helping you. Good luck!

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