Businesses are holding onto their cash tightly, choosing to store it in bank accounts instead of high-yield, high-risk investments.

According to an article published by CFO.com, companies have deposited 42 percent of their short-term cash into bank accounts. Last year, they deposited just 37 percent, and only 25 percent in 2008.

After years of less-than-stellar economic performance, businesses are still nervous to let go of their cash reserves. They are even forsaking traditional investments, such as mutual funds invested in treasuries markets, Eurodollar deposits, and commercial paper, in favor of “safer” investments. These include bank accounts, money market mutuals, and Treasury securities.

An AFP survey found that companies are more inclined to spend their money improving capital, rather than on capital improvements. While they are busy shoring up their cash reserves, they are putting off hiring additional workers and investing in new technology.

The same AFP survey believes this is trend will not continue. Participants saw their short-term cash balances grow during the first half of 2010. As businesses feel confident that their cash positions are safe, they will likely be more inclined to make higher-yielding investments and invest in capital improvements.

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