Why Your Treasury Policy Is Probably Outdated
TL;DR
- A $5M cash balance sitting in a non-interest-bearing account when 90-day T-bills are yielding 4.5 to 5.0 percent represents $225K to $250K in annual foregone yield.
- Government money market funds investing in US Treasury securities have a risk profile that most corporate treasury policies can accommodate without board approval for a policy change, with a stable NAV of $1.00 and liquidity of T+1.
- Direct accounts at Fidelity, Vanguard, or Schwab for their government money market fund class will typically outperform bank sweeps by 15 to 30 basis points in terms of yield.
Most corporate treasury policies were written when the risk-free rate was near zero and idle cash sitting in a checking account cost nothing in opportunity terms. The rate environment changed in 2022 and has remained elevated since. The policies have not caught up.
If your treasury policy was last updated before 2022, there is a reasonable chance it is costing you material yield on cash you are already holding, not through bad investments, but through no investments at all.
What an Outdated Policy Looks Like
The typical outdated treasury policy has a few common features: it authorizes operating cash to sit in a non-interest-bearing checking account without a floor threshold for moving excess to yield-bearing instruments; it prohibits money market funds or treats them as equivalent in risk to direct equity investments (they are not); and it has no language covering fintech treasury tools that have emerged in the last four years.
A $5M cash balance sitting in a non-interest-bearing account when 90-day T-bills are yielding 4.5 to 5.0 percent represents $225K to $250K in annual foregone yield. For a mid-market company, that is a meaningful line item that requires no additional operational risk.
Money Market Funds: The Obvious First Step
Government money market funds investing in US Treasury securities have a risk profile that most corporate treasury policies can accommodate without board approval for a policy change. The NAV is stable at $1.00. The liquidity is T+1. The yield tracks the fed funds rate.
The practical process: your banking relationship likely already offers a sweep product that moves excess checking balances into a money market fund automatically above a defined threshold. Call your relationship manager and ask. This is the zero-friction version of a treasury upgrade: no new vendors, no new legal work, no new accounts.
If you want better rates than a bank sweep offers, direct accounts at Fidelity, Vanguard, or Schwab for their government money market fund class will typically outperform bank sweeps by 15 to 30 basis points.
Fintech Treasury Tools
A newer category of treasury platforms including Brex, Ramp, Mercury, and Treasure.com have added yield products built on top of money market funds or short-duration Treasuries directly. The evaluation criteria: what is the underlying instrument, what is the redemption timeline for returning cash to operations, and what is the counterparty risk structure if the platform has issues.
Updating the Policy
A treasury policy update does not require a board vote at most companies. It requires CFO sign-off and in some cases audit committee notification. The policy update should address: the definition of operating reserves versus excess cash (typically 3 to 6 months of operating expenses), the approved instrument types for each tier, yield targets as a benchmark, and redemption timing requirements for each tier.
The companies leaving the most yield on the table are not the ones with aggressive investment policies. They are the ones with no policy, running on the default behavior of whatever bank account was opened when the company was founded. Fixing this is a finance initiative, not a financial risk, and the payoff is immediate and compounding.