Businesses miss out on billions of pounds of interest | moneyfacts.co.uk

Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 28/01/2020

Small and medium-sized enterprises (SMEs) are losing £4.2bn in interest on their savings deposits. A failure to optimise the levels of investment into fixed term deposits and easy access accounts and apathy to switch because of low interest rates is costing businesses billions in lost interest.
The findings contained in the SME Savings Monitor published by Shawbrook Bank include calculations from the Centre for Economic and Business Research (CEBR). It found that small businesses have, on average, 57% of their total capital held in a business easy access account, while they only need 31% of these reserves to meet their day-to-day cashflow needs. As a result, businesses are earning less money on funds they could potentially invest in a fixed term deposit account, which usually pay higher rates of interest. In addition, 42% of SMEs said higher interest rates would encourage them to be more engaged with their savings portfolios.
While an increase in the Bank of England base rate looks unlikely at the next meeting of the Monetary Policy Committee this Thursday, businesses can still increase their interest rates by more than four times by moving from an easy access to a fixed term product of less than two years.
Data from Moneyfacts.co.uk shows that the average interest rate for a business easy access account is just 0.36% for a balance of £1,000. Meanwhile, a fixed term deposit of less than two years pays an average of 1.47% for a £1,000 opening deposit.

Three ways to improve business savings returns

Here are three ways to maximise the interest earned on business deposits.

1. Maximise the interest rate on easy access savings

Business owners can earn nearly three times more in interest in one year just by moving from an account paying the average rate of 0.36% to the top rate of 1.05%. For example, £10,000 saved into an account at 1.05% will earn £105 in interest; £69 more than an account paying 0.36%.

Why choose a business easy access savings account?

Easy access accounts allow you to earn interest without paying a monthly fee and remain accessible when you need access to cash quickly.

2. Transfer funds to a 90+ day notice account

In the business savings charts, easy access rates are outperforming the top rates for 30 and 60-day notice accounts. For an interest rate that beats those offered on easy access accounts, select a 90+ day notice account. Businesses could currently earn £55 more for a £10,000 deposit with the top-paying 95-day notice account at 1.55% versus the top easy access rate of 1.05%.

Why choose a business notice account?

Easy access accounts allow you to earn interest without paying a monthly fee and remain accessible when you need access to cash quickly.

3. Move funds you don’t expect to need in the long-term into a fixed term account

For instance, switching £10,000 from the top easy access rate of 1.05% to the top-paying two-year fixed rate business bond at 1.90% will earn an extra £172.51 over two years (with compounded interest).

Why choose fixed rate business bond?

Fixed rate deposits can form part of future business investment plans and be part of building financial resilience in case of tougher trading in the future.

The best rates for business savings accounts right now

The accounts below are available to sole traders, limited companies, clubs and charities.

Business easy access accounts available online and from £1,000

1. Shawbrook Bank – Easy Access Business Account Issue 1 pays 1.05% AER on anniversary or 1.04% AER monthly. Businesses can open this account online and by post.
2. Virgin Money – Business Access Account Issue 6 pays 1.01% AER monthly. Businesses can open this account with as little as £1.
3. Al Rayan Bank – Everyday Saver (Issue 2) offers an expected profit rate of 1.00% AER monthly. This account may be opened with a minimum deposit of £500.

Business 90 day+ notice accounts available online and from £10,000

1. Redwood Bank – 95 Day Business Savings Account (Issue 6) pays 1.55% AER monthly and on its anniversary. This account may be opened by post or online. Businesses will need to give 95 days’ notice to make withdrawals from this account.
2. United Trust Bank – Business 200d Notice Account pays 1.55% AER yearly. The minimum investment is £5,000. Businesses will need to give 200 days’ notice to make withdrawals from this account.
3. Al Rayan Bank – 90 Day Notice Account has an expected profit rate of 1.51% AER monthly. This account may be opened with £250. Businesses will need to give 90 days’ notice to make withdrawals from this account.

One-year business fixed rate bonds available online and from £10,000

1. Masthaven Bank – 1 Year Fixed Term Bond pays 1.71% fixed AER on maturity. The minimum investment is £5,000. Withdrawals and early access are not permitted.
2. United Trust Bank – Business 1 Year Bond pays 1.65% fixed AER on maturity. Businesses will need at least £5,000 to open this account and will not be able to access the funds before the maturity date.
3. Hampshire Trust Bank – 1 Year Business Bond (Issue 31) pays 1.61% fixed AER on maturity. This bond may be opened by post or online but withdrawals are not permitted before the bond matures.

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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