With the Federal Reserve cutting interest rates recently, you have probably noticed the effect on your company’s interest earnings from cash balances. With another possible rate cut coming this month, it’s important to be prepared.
The good news is, there are steps you can take to better navigate these changes, and Redbridge is here to help.
The Challenge at Hand
Interest rates are falling, and that makes having transparency on and ensuring fair yield rate reductions a key priority.
After the Fed’s rate cut in September, many companies felt the impact on yield earnings from cash balances. If you are managing relationships with multiple banks, chances are you have seen most of them lower their rates. On average, our clients experienced a 0.45% decrease (vs 0.50% FFR cut), which directly affects earnings and cash flow.
Companies have handled this situation differently:
- Accepting the Changes: Some choose not to challenge the rate decreases at this time, as they want to see how their banks react with subsequent rate cuts.
- Taking Action: Others decided to negotiate with their banks or sought expert help to lessen the impact.
These experiences show that having detailed visibility and being proactive can really make a difference in protecting your company’s yield earnings.
How You Can Respond
Here are some steps you can take to tackle these challenges:
#1 Understand Where You Stand
Take a close look at your bank agreements. What do they say about rate changes? Do your banks adjust rates fully or only partially when the Fed makes a move?
#2 Analyze Your Recent Data
Review your September and October statements to see exactly how the rate cuts have affected you. Which banks changed their rates, and by how much? Spotting these trends can help you plan your next steps.
#3 Challenge the current level of your rates
If the rates you are receiving are already well below the Federal Funds Rate (FFR), then there’s no justification for your bank to reduce them further when the Fed announces a cut. In this situation, it’s worth pushing back and reminding your banking partner of your existing rate structure. By doing so, you can help ensure they stick to what you have negotiated rather than automatically passing along rate decreases that were never intended to apply in your case.
#4 Have a fact and analysis-based discussion with your bank
Don’t wait for the next rate cut to start a conversation. Start by gathering the facts and data needed to have a productive conversation with your banks. This requires viewing, analyzing, and understanding the data found on your bank statements. This process will help you negotiate better terms — for instance, there may be a chance you can get your bank to pass through a smaller percentage of the rate decrease.
#5 Consider Expert Guidance
Think about getting help from professionals. Treasury advisors can offer valuable insights and assist you in negotiations. Also, tools like our bank fee monitoring software, HawkeyeBSB, will help you monitor your bank rates in real time, giving you an edge.
Why Acting Now Matters
By taking action sooner rather than later, you can:
- Protect Your Earnings: Reduce the negative effects of rate cuts on your financial statements.
- Build Stronger Relationships: Show your banks that you are proactive and informed, which can lead to better collaboration.
- Stay Ahead: Prepare for future changes so your organization continues to thrive.
If you don’t act, you might miss out on opportunities and face more financial challenges down the road.
Next Steps to Take
A key challenge companies face in acting promptly is the lack of resources, time, data and expertise and competing other priorities.
We understand that and at Redbridge Debt & Treasury Advisory, we have the dedicated resources, market leading software, proprietary benchmarks and expertise to optimize your yield rates in a falling rate environment – as you focus on other priority areas.
We’re Here to Support You
We understand that dealing with these changes isn’t easy. At Redbridge Debt & Treasury Advisory, we’ve helped clients navigate similar situations, protecting their earnings and improving their treasury strategies.
You don’t have to face this challenge alone. Contact us today to set up a consultation and take control of your organization’s financial future.
About Redbridge Debt & Treasury Advisory
At Redbridge, we’re committed to helping treasury professionals like you succeed. We offer personalized advisory services and innovative tools to help you navigate the complex world of finance with confidence.
Want to stay updated? Subscribe to our newsletter for the latest insights and strategies.