TL;DR: Fixed-term deposits offer a known interest rate in exchange for locking your business cash away (often 3 months to 5 years). A Business Account lets you invest with no fixed term and access your money within a few business days, but returns vary and your capital is at risk. Many businesses use both: bank/current account for near-term spending, fixed term for money with a known date, and investing for flexible reserves and long-term surplus.
If your business has surplus cash sitting in the bank, you broadly have three places it can live: a business bank account, a fixed-term deposit with a bank, or an investment account.
The first is the simplest because it’s just cash. The other two are often pitched as alternatives to each other, and the question of which one is right for you and your business is an important one to ask.
This article explores how the solutions compare, where each one fits, and why many businesses end up using a combination of both.
What a fixed-term rate actually is
A fixed-term business deposit is a savings product offered by a bank where you:
- Deposit a lump sum of company cash
- Agree to leave it untouched for a fixed period – commonly between three months and five years
- In return, the bank pays a fixed interest rate for the whole term
At the end of the term (maturity), you get your deposit back plus the interest earned. Some accounts let you break the term early in exchange for an interest penalty, though many don’t allow early access at all.
Key features in one line: the rate is agreed up front, your capital is protected by the bank (and FSCS up to £85,000 per banking licence), and the cash is locked away for the term.
What a Business investment account is
An InvestEngine Business Account is a General Investment Account in the company’s name that lets you invest your company cash. The details are very different from a fixed-term deposit.
- There’s no fixed term and no lock-up. You can sell whenever you need to, and the cash can be back in the business bank account within a few business days.
- There are no fixed rates. The return depends on what you choose to invest in. That could be low volatility investments (Overnight Rate ETFs, for example) right through to higher risk global equity ETFs that shoot for higher long-term growth.
- Your capital is at risk. As with all investing, the value of your portfolio can go down as well as up, and you may get back less than you invested.
- They have no contribution limit. Unlike personal ISAs, there’s no annual cap on how much a company can invest in the GIA.
For a more complete breakdown, check out our article on what you can invest in with a business account.
The trade-offs
It’s tempting to compare the two by looking at the headline rate alone.
A fixed term might pay 4.5%, but equities can and have historically returned around 7–8% a year, so investing wins, right? That simplistic comparison misses out a lot of important details (and past performance is not an indicator of future returns).
The real trade-offs are:
1. Certainty of return
With a fixed term the rate is locked in at outset. You know exactly what the cash will be worth at maturity.
Investing with a Business Account means that the return is whatever the market delivers over your holding period. It could be more, it could be less, or it could be negative in the short term.
If certainty is required, like with cash you’ve earmarked for a specific bill on a specific date, a fixed term has a real advantage that’s difficult to balance with investments.
2. Access to your money
Fixed term products typically lock your cash in for the term. Some products allow early access with a penalty (e.g. loss of some or all interest), while some don’t allow it at all.
Business Accounts come with no lock-up. You can sell and withdraw at any time, with the cash typically reaching your bank account within 5 business days (see our full explainer on withdrawing for more info).
If there’s any chance the business might need the cash before the end of the term, the lack of flexibility on a fixed-term deposit can come at a real cost, not just a theoretical one.
3. Inflation and the real return
Fixed-term rates are quoted in nominal terms, which means they don’t adjust for inflation. A 4.5% rate when inflation is 3% leaves you with roughly 1.5% real growth before tax.
When inflation runs higher than the rate (as it did across 2022–2023 for many products), the real return can end up being negative, even if the nominal balance is going up.
Investments aren’t immune to inflation either, but long-term investing in real assets like global equities can give your cash the opportunity to beat inflation. There are no guarantees here of course, but the opportunity to earn an inflation-beating real return is the core argument for taking on market risk by investing.
4. Tax
For a UK limited company, both interest from a fixed-term deposit and any gains, dividends or interest from a Business Account feed into the company’s Corporation Tax position.
Fixed-term interest is treated as taxable income in the year it’s earned (or as it accrues, depending on the accounting basis).
Investment returns in a Business Account are a mix of dividends, interest and realised capital gains. All of this feeds into Corporation Tax. Unrealised gains aren’t taxed; tax is only triggered when you sell.
That last point is a meaningful difference: a Business Account gives you some control over when gains are realised, which can be useful for managing the company’s tax position. Speak to your accountant for specifics.
Side-by-side comparison
| Fixed-term deposit | Business Account (investing) | |
| Return | Known, fixed rate | Variable – it depends on what you invest in |
| Capital risk | None (subject to FSCS limits) | Yes, the value can fall |
| Access | Locked in for the term | Sell anytime; cash back in up to 5 business days |
| Time horizon | Defined by the term (typically 3 months – 5 years) | Flexible. Short, medium or long |
| Inflation protection | None. Nominal rate only | Potentially, over the long term (not guaranteed) |
| Tax | Interest taxed under Corporation Tax | Income and realised gains taxed under Corporation Tax |
| Minimum | Varies by bank, but often £5,000+ | £100 to open; top up from £1 |
When a fixed-term rate is worth considering
A fixed-term deposit is usually the cleanest fit when:
- The business has a specific bill or commitment on a known future date. For example, a Corporation Tax payment, a planned hire, a deposit on a property. Ultimately, when certainty matters more than maximising return.
- You definitely won’t need the cash early, or the early-access penalty is acceptable.
- The fixed rate on offer is meaningfully ahead of inflation, so the real return is genuinely positive.
In these cases, swapping certainty for the chance of slightly higher returns elsewhere often isn’t always worth the additional complexity.
When a Business Account is probably the right call
A Business Account tends to be a better fit when:
- The time horizon is longer, say two years or more. The business can ride out short-term volatility for a shot at higher real returns.
- You want flexibility, like the ability to adjust how much is invested, sell partially, or change the portfolio mix as the business evolves.
- You want exposure to real assets (equities, bonds, gold) to give the cash a chance to grow ahead of inflation over the long term.
- You want a near-cash option that still earns a yield without locking the money away. Overnight Rate ETFs broadly track short-term interest rates and can be sold at any time, for example.
Most businesses end up using both
In practice, the question is less about which one you choose, and more about how to split cash across the two.
A typical structure looks like this:
Operating cash (days to weeks)
Stays in the business current account. Liquid, accessible, but earning very little. This is fine in this instance, as this money has a job to do soon.
Known, short-term commitments (months)
Money for a specific upcoming bill or expense with a known date. A fixed-term deposit matching that date can work well, as you know what you’ll have on the day you need it.
Medium-term surplus (1–3 years)
A blend of short-dated bond ETFs and a smaller equity allocation in a Business Account, designed to grow steadily without exposing the whole pot to deep equity drawdowns.
Long-term retained profits (3+ years)
Diversified equity and bond ETFs in a Business Account, focused on long-term real growth. This is where the gap between liquid cash and invested cash really starts to show itself over time.
FAQ
Can I get a fixed rate inside a Business Account?
Not a guaranteed rate, no. The closest you can get is an Overnight Rate ETF, which aims to track short-term interest rates. The yield moves with rates rather than being locked in, but there’s no fixed term and no lock-up.
What if I need the money before the fixed term ends?
Depends on the specific product. Some allow early access with a loss of interest; others don’t permit it at all. Always read the terms before locking in a long fixed term – it’s the single most important thing to check.
Is investing better for the long term?
Historically, diversified equity investing has tended to beat cash and fixed-term deposits over horizons of 10+ years. However, past performance is not a guarantee of future results, and there’s always a chance markets disappoint over any given period.
Can I split the same lump sum across both?
Yes, and a lot of businesses do. There’s nothing stopping you putting some surplus cash into a fixed-term deposit and the rest into a Business Account.
How does tax compare between the two?
For a UK limited company, both feed into the company’s Corporation Tax position. Fixed-term interest is taxable as it’s earned/accrued; investment returns are a mix of dividends, interest and (when realised) capital gains. A Business Account gives you some control over when gains are crystallised, which can help with tax planning. Speak to your accountant for specifics.
The bottom line
Fixed-term rates and investing aren’t mutually exclusive solutions. They solve different problems. Fixed-term deposits give you certainty and a known number in exchange for locking the cash away. A Business Account gives you flexibility and the chance of higher long-term real returns in exchange for accepting that capital is at risk.
For most businesses, the better question isn’t “which one?” but “what is each pot of cash actually for?” and then matching the tool to the job. For anything specific to your business’s tax or financial position, speak to your accountant or a qualified financial adviser.
Important information
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply. Past performance is not a reliable indicator of future results.
Fixed-term deposit rates and product features are set by individual banks and are subject to change. FSCS protection depends on individual eligibility and circumstances and does not cover losses caused by market movements.
Tax treatment depends on individual circumstances and is subject to change. This communication is provided for general information only and should not be construed as advice – speak to your accountant or a qualified adviser for anything specific to your situation.