Getting a Competitive Interest Rate for Your Startup Capital

Congratulations—you raised money! The wire has arrived in your company’s checking account, and you’re very reasonably asking: now what?‍

If you do nothing, it sits there making 0% interest. But with a little work, you could be earning significant interest on that money in an extremely low-risk way. As of this writing, something like 4.5% a year. And 4.5% of a $3 million fundraising round is $135k/year—that’s nothing to scoff at!

How does it work?

You invest your company’s money in something extremely conservative, like US Treasury Bills or a federal money market fund, which allows you to earn real interest while still having your investment protected by “the full faith and credit of the US government.”

To get a sense of the yields we’re talking about, this page will show you the current yield of 1-month Treasuries, and this page will show you the current yield of a Treasury money market fund.

Some banks have minimum balance requirements to be able to get a competitive interest rate, so this isn’t for everyone.

How do I set this up?

Here is how you can earn interest at some of the most popular providers used by Pilot customers. We recommend getting your board’s buy-in on your cash management strategy.

Mercury

You can open a Mercury Treasury account on their website. We recommend the “100% US government securities” option unless your board approves another option.

Brex Cash

In your Brex Cash account, you can adjust your allocation % between “your regular account” and money-market funds. Detailed instructions are here.

What if I don't use any of these providers?

Ask your current bank if they provide this service. If they don’t, and you have a balance of $250k+, you should seriously consider switching to a bank that does. Send us an email if you’d like an intro or if we can help at all.

What should I watch out for?

Your startup’s “treasury management” goals are: capital preservation, liquidity, and income—in that order. Your backers invested in your company because they were excited about what you could build, not because of your prowess in picking stocks.

You should never take a risk with startup corporate funds by investing company cash into something that has a real chance of losing value. If you’re a sophisticated investor and want to make an exception you should have your board approve an official written investment policy that authorizes riskier investments before making any investments. But again, we don’t recommend it.

There are many ways to get a competitive, basically-no-risk interest rate on your cash—including via the services we list above. But there are also many ways to accidentally invest in something far riskier than you intended.

If someone is offering you a too-good-to-be-true interest rate, there’s a reason for that: it is too good to be true. There’s a reason the interest rate is higher: because there’s something riskier about the underlying asset.

This is a place where you’re best served being as boring and conservative as possible. If a service’s subtext seems to be “You could invest in super-safe T-Bills.... or you could invest in stablecoins!” you should run the other way.

Finally, as a matter of convenience, why not simply do this where your funds are already stored?

Should I put all of my company’s money in crypto?

No. (Did you even read the rest of this article?)

Conclusion

If your company has a significant amount of money in its bank account, invest it in something ultraconservative like T-Bills, because it could actually really help extend your runway.

If you have any questions about anything in this post, please get in touch.

And if you’re looking for back-office finance guidance more generally, you may be interested in Pilot’s CFO services offering—we help literally thousands of startups out with their financial back office.

Disclaimer

Pilot is not an investment adviser, and this article should not be taken as investment advice.