Blog: Knowledge is Power: When Interest Rates Rise, What’s Your Cash Plan?

What is the true cost of money sitting in an ATM, and how will you manage that expense when interest rates go up?

With record-low interest rates in the U.S., financial institutions (FIs) may find it easy to overlook the cost of holding cash in their self-service terminals. Without systems to scrutinize the actual cash needed for consumers, FIs often opt for an “auto-fill” approach: They keep ATMs completely full – regardless of the cost of actually holding that money in the ATM. This approach loses focus on the cost of holding cash, as well as added expenses related to refill activity, such as driving, guards, an armored vehicle and cash counting.

Sure, the cost of money at an ATM might seem minor if the terminal does a few hundred transactions per month and holds $100,000. But, the cost multiplies with transaction frequency. Consider a bank that is sitting on millions, or billions, in their self-service network. If interest rates increase even slightly, the cost that bank is paying to keep money in the ATM escalates exponentially.

For example, if an FI in the United States is holding $500 million in their ATMs, at today’s current 1% interest rates that translates to $5 million in interest payments. If interest rates were to increase to 5%, that $5 million would multiply to $25 million per year. That’s the reality for many countries today, from the 10% interest rates in Russia to the 30% interest rates in Latin America. That’s a significant chunk out of an FI’s profit – and a huge opportunity cost.

Half Empty or Half Full? Looking at ATM Cash Costs

There are a number of misconceptions about the best ways to manage cash in ATMs. Traditionally in this low-interest rate economy, FIs have focused on keeping ATMs full so customers never have to see that “closed for service” message. Service quality is an issue. Therefore, ATMs that are half-full are replenished even if there is sufficient cash available.

Also, some banks maintain refill schedules, “just because.” Replenishment schedules are often determined months in advance, so self-service machines are being filled regardless of their cash levels.

Manual Solutions are No Longer Enough to Support Optimized Cash Management

Many FIs are still reliant on Excel spreadsheets to track ATM use and cash levels. The problem is, Excel spreadsheets significantly limit the ability to forecast how much money ATMs need. Also, Excel requires manual attention. In the end, FIs could be routinely allocating more cash to self-service machines than necessary because this low-tech tool does not indicate how much cash is actually needed, and they do not realize the actual cost of overloading ATM machines. That is, until interest rates rise and they feel the dip financially.

Optimizing the Cash Cycle

What’s the answer for FIs that realize they need a more robust, proactive cash management plan to preserve profits once rates climb? Cash cycle optimization fulfills on the promise of cash recycling, giving FIs real-time insight into self-service machine cash levels and consumer behaviors at the ATM. That way, they can fill the machine as needed and avoid amassing interest expenses that eat into profits. 

Before interest rates climb, proactive FIs can adopt cash cycle software that allows them to optimize the levels of cash when replenishing ATMs. By gaining a true understanding of the cash needed at each self-service terminal, FIs can prevent paying interest for “sitting cash” in ATMs, and reduce expenses related to replenishment.

It goes back to the old saying, “knowledge is power.” When FIs improve the sophistication of software so they gain a real-time picture of how cash moves, they can better plan and manage the inevitable cost that comes with rate increases.

Is your cash management as efficient as it could be? Let’s start a conversation today.