What Is Cash Concentration?

Cash concentration is a service offered by some banks to customers with multiple accounts where excess is taken from the individual accounts and pooled in a single common account. There are a number of reasons for consumers to take advantage of this service, ranging from the safety of employees at a company with multiple branches to a desire to invest surplus capital more effectively. The customer has a high degree of control over the cash concentration and can tailor the service to meet specific needs.

In cash concentration, the customer can link several accounts and set limits. When a balance goes over the limit, the bank automatically transfers the excess into the cash concentration account. It is possible to maintain zero balance accounts, in which case any deposits move through the empty account and into the central one. The bank's statements provide information about how much money is in each account, and how much is available in the concentrated account.

One reason to use this service is to allow employees of a company to make deposits at a nearby bank branch, which is safer and more convenient. Rather than having to manually transfer the funds, the company can have them moved in a cash concentration scheme. It may designate the branch accounts as zero balance so it's possible to deposit money but not to take any out, or it could leave a small amount of money in each account for use as petty cash by individual business branches, if necessary.

Another reason can be better organization of wealth. A company can keep enough money in each satellite account to meet bills and obligations, and pool the rest into the central account to get a better picture of how much money it has available for investment or debt reduction. This can also be used as a savings technique, to immediately pull any extra money out of an account in regular use. This can eliminate the temptation to spend it, and will allow a company to stock up funds for future use.

Banks with cash concentration services available can discuss them with customers. Financial advisers may be able to offer assistance to customers who are not sure about how much money to leave in each individual account. The bank can consider the needs of the business, prior banking habits, and the behaviors of other customers to recommend a reasonable balance, and the cash concentration plan can also be programmed to return money to prevent overdrafts.