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May 08th 2017

How Do Interest Rates Affect Cash Management?

The Federal Reserve recently announced it has raised interest rates by 0.25 percent, and bank policymakers project at least two more rate increases this year.


The Federal Reserve’s base rate directly and indirectly affects multiple factors within an economy. In terms of payments and the retail market, it affects the level of bank interest which merchants receive when they deposit cash takings. Therefore, changes in interest rates can affect the armored transport (AT) industry and merchants’ choice over their service volumes.

Interest rates and cash management strategy

Top-performing merchants must be agile to calculate its impact. A change in any of the inputs to this calculation for any one of a merchant’s sites – cash takings, insurance limits, safe limits, internal rate of return etc. – naturally has an effect on the output and is likely to change the optimal schedule.

Interest rates go up

Any upward trend in interest rates is positive for merchants insofar as the internal rate of return for any cash put into the bank begins to increase. As interest rates have sat at historically low levels for the last seven years, any increase is a positive step, although as interest rates begin to increase and with the global economy still in a state of flux, it is important for merchants to be cautious.

Increasing interest rates typically lead to merchants wishing to rush cash into the bank as quickly as possible to maximize the benefits of the rate rise, as merchants change their priorities and place a premium on cash flow over cost. Increased premiums on cash flow can mean more pickups, and this may not be the most optimal solution, particularly if interest rises are small.

Interest rates go down

A downward change in the Fed’s base rate means that the internal rate of return is likely to be impacted for merchants operating in the US. It is now essential that merchants review their AT schedules to ensure that they are still optimal for each of their sites.

Falling interest rates affect the level of incentive merchants have to move cash into the bank quickly. This means that if merchants do not change their AT schedules following a change in interest rates, then a merchant will pay for services which are of no additional benefit to them.

Further, keeping cash on site for longer could ultimately be better for the company in the short to medium term. However, this is dependent on interest rates remaining at these levels for the next 1-2 years.

Interest rates remain the same

While some may not take notice of an interest rate non-movement, it is in fact still important to merchants, particularly those who are looking to become cash management top-performers. In the case of interest rates staying the same, the strategy is less about looking at the schedule in place and more about what arrangements and provider the merchant is with. Moreover, as interest rates remain stagnant, AT companies are more likely to further push alternative higher margin products such as smart safes onto merchants, which can either assist or hinder a cash management strategy depending on contract terms.

By remaining agile when it comes to AT arrangements and being able to move providers with relative ease, a merchant is able to keep saving money and become more efficient, even if interest rates remain the same.