Short-Term Investment Instruments

For eight years, many European treasurers paid for the privilege of holding cash. The ECB's deposit rate sat below zero from 2014 to 2022, and banks passed the cost through to corporate deposits. A generation of finance teams learned that there wasn't much benefit to moving funds from call accounts to a short-term notice account, and that chasing yield beyond that could be a dangerous pursuit. That instinct has outlived the world that created it. With the ECB deposit rate at 2.25% in mid-2026, every instrument on the menu pays something or should pay something, and the differences between them are worth real money.

The question that matters more than rate versus term

What is the higher rate compensating you for?

• Is it the shape of the interest rate curve? Generally, but not always upward sloping, naturally rewarding people for investing for longer.
• Is it liquidity premium, for locking up your funds for a longer term? And providing the bank with more stable funding?
• Is it available on small balances only? Helping banks diversify their funding and avoid concentration, but not much use for a large corporate.
• Is it credit premium for taking higher credit risk on a lower rated institution?
• Is it investment risk, compensation for the possibility of negative returns?

Or is there another risk you are taking that is less obvious?

The standard options

Bank deposits are the default: call accounts for instant access, notice accounts at 32 or 95 days for a little more, term deposits for a defined period at a defined rate for cash you know you don't need. Simple & familiar on the face of it, but each can carry different conditions in a stress. For example, instant access became a lot more instant in the age of neo-banking apps, but these apps now come with conditions about how much you can withdraw at once. The conditions are sufficient for most every-day banking requirements, depending on your plan, but they may not be sufficient to clear out your account should you need to take urgent action. How you access your funds beyond that hasn't been tested in a crisis. We cover deposits in more detail in the deposit deep-dive.

Money market funds pool hundreds of issuers into a single same-day-liquidity holding: diversification you couldn't build yourself. But a fund is not a deposit. The 2008 Reserve Primary episode proved the value can move, and the post-crisis reforms that created today's low volatility NAV (LVNAV) structures also formalised the gates and fees a fund can impose in stress. Read the terms in advance and ensure that risks and conditions are well understood. The MMF deep dive below covers how.

Direct purchases of bonds, T-bills, commercial paper, certificates of deposit and repo, cut out the intermediary entirely: you choose the issuer and the maturity. The price is operational: time, custody arrangements, dealing relationships and minimum sizes that only make sense once balances justify them.

Laddering: the unglamorous trick that works

Rather than one big deposit maturing on one date, split it into slices maturing monthly. A rolling ladder gives you regular liquidity without breaking anything, averages your reinvestment rate through the cycle, and removes the temptation to take a view on where rates go next.

The same job at three sizes