Leanne Macardle

Leanne Macardle

Editor
Published: 08/05/2019

Businesses with surplus cash reserves may well be acting with caution, particularly during times of uncertainty, with many keeping their cash in a business savings account from a high street name. Yet this means they could be missing out on the most lucrative returns, with the latest research from Moneyfacts.co.uk revealing that the best rates within the business savings market come from challenger banks – and in even better news, competition between these newer brands has caused rates to rise substantially in the last year.

This is particularly the case in the one-year bond sector. For example, the top-paying one-year fixed business bond is from challenger BFC Bank and currently pays 2.50%, 0.48% more than the best deal seen a year ago, with the average one-year rate having similarly increased from 1.10% to 1.41% (see the table below for more details). Not only that, but this is a higher rate than the top deal available from a personal savings account, with BLME's one-year bond paying an expected profit rate of 2.20%.

The figures go on to reveal that the top business savings deal from a high street bank has also increased, though to a far lesser extent – Bank of Scotland and Lloyds Bank have a one-year bond paying 1.15%, which is up from 0.80% a year ago but still a far cry from BFC's rate of 2.50% – highlighting the benefits of opting for a challenger over a high street name.

Business savings market analysis


Business savings rates


April 2014


April 2018


April 2019


Average one-year fixed


1.36%


1.10%


1.41%


Top one-year fixed


Aldermore – 1.85%


Al Rayan Bank – 2.02%*


BFC Bank – 2.50%


Top high-street bank one-year fixed


Santander – 1.40%


Bank of Scotland / Lloyds Bank – 0.80%


Bank of Scotland / Lloyds Bank – 1.15%


Lowest high-street bank one-year fixed


HSBC – 0.55%


Santander – 0.50%


Santander – 0.50%

Top bonds at £10,000 gross. High-street banks considered are the biggest on the high street that offered a bond as per the year above, including: Bank of Scotland, HSBC, Lloyds Bank and Santander. *Sharia'a compliant. Source: Moneyfacts.co.uk

"Businesses who are looking to lock away some of their capital reserves will be pleased to find that the interest rates offered on one-year fixed business bonds are on the rise," said Rachel Springall, finance expert at Moneyfacts.co.uk.

"Challenger banks have been competing in this market consistently over the past five years in particular, and now the top deal even surpasses the best rate possible on personal savings bonds over a one-year term. Indeed, BFC Bank, which launched its one-year bond within the past six months, leads its sector with an interest rate of 2.50%."

This just shows how important it is for businesses to consider these fresher brands for their capital, yet few seem to be taking the plunge. Indeed, a recent study by Aldermore revealed that the majority (65%) of SMEs hold their surplus funds with the same provider as their personal savings account, and if they're on the high street, they're unlikely to be achieving a significant return.

"One-year fixed bonds now take up a quarter of the market for all fixed business bonds, but there are very few available from the largest high street banks," said Rachel. "If businesses choose these more familiar brands over the top deals, then they will be losing out on a better return on their cash. Businesses would be wise to review where their cash is held and consider choosing a one-year fixed bond from a challenger bank to weather any financial storm, especially if they want to keep their cash safe and make a decent return on their reserves in the process."

What next?

If you're a business owner and don't need access to your cash reserves on a regular basis – perhaps if you're keeping a lump sum untouched for a future tax bill, for example – you could get a far better return by choosing a one-year bond from a challenger bank. Take a look at the business bond Best Buys and you'll soon see why these lesser-known names are worth considering.

Disclaimer

Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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