Consumers aren’t the only ones being squeezed by soaring inflation. UK businesses and SMEs are also counting the cost of rising energy, fuel and materials bills and watching every pound of income. However, what many don’t realise, is that UK businesses may be losing out on a massive £992 million of interest each year by keeping £103.5 billion* of company money in low paying business deposit accounts.
Independent savings expert Andrew Hagger of MoneyComms, was commissioned by United Trust Bank to look at UK businesses’ finances and found that as well as the estimated £166.5bn* businesses have in their current accounts, they hold an estimated £103.5bn* in business deposit accounts. Furthermore, he found a poor choice of low paying business deposit accounts from the leading market providers in which a majority of businesses are keeping their cash reserves or ‘war chests’.
According to the Competition and Markets Authority, the largest five providers, who are all high street banks, account for 85 per cent of the business current account market. Although there aren’t separate figures available to show the share of the business deposit accounts, Andrew Hagger of MoneyComms believes that as most businesses open a deposit account when they open a current account the market share will be broadly similar.
Mr Hagger’s analysis of business savings rates via provider websites was carried out from 9th-11th May 2022 and the information contained in his report is based on the figures available during that period.
Mr Hagger found that the large providers offer woefully low interest rates on their instant access deposit accounts – just 0.094% p.a. on average at the time of his research, compared to a whole market average of 0.30% p.a. – and their 1 year fixed rate bonds pay little more than half the market average – 0.47% p.a. compared to 0.90% p.a.
Barclays, Lloyds and Bank of Scotland were paying just 0.1% interest on their instant access business deposit accounts. An SME with a £75,000 balance in one of those accounts would earn just £7.50 gross interest a year.
Andrew Hagger calculated that if the full £103.5bn business deposits balance was held in an average high street bank instant access account, companies and SMEs would be earning around £97.29m in interest annually; but they could be earning over £1billion by switching!
Mr Hagger suggested that if the £103.5bn balance was switched to an average 100-day notice account (market average 0.83% p.a.) their annual interest would jump to £859.1m.
Going one step further and switching to a more competitive rate from United Trust Bank (1.05% p.a. at the time) for example, would see that annual interest soar to over £1 billion (£1.09bn)
Breaking down those figures it’s easier to see how switching to a more competitive product might improve SMEs’ finances.
(All interest rates used are Gross/AER and were correct as at 9th-11th May 2022. Source – Moneycomms research)
| Deposit Balance | Average High Street Instant Access | UTB 100 Day Notice | Additional interest earned per year | |
| Interest rate | 0.094% | 1.05% | ||
| Account balance | £150,000 | £141 | £1,575 | £1,434 |
| Account balance | £100,000 | £94 | £1,050 | £956 |
| Account balance | £75,000 | £70 | £787 | £717 |
| Account balance | £50,000 | £47 | £525 | £478 |
| Account balance | £20,000 | £19 | £210 | £191 |
The research revealed that the five banks which dominate the market offered little choice for business customers, with only three additional accounts available beyond the lowest paying ‘instant’ accounts. The best paying instant access deposit account offered by one of those five banks was from Santander which was paying 0.30% per annum. Barclays and Lloyds were paying 0.1%.
| Provider | Instant | 40 days | 95/100 days | 200 days | 1 year | 2 years |
| Lloyds Bank | 0.01% | 0.15% | 0.5% | |||
| HSBC | 0.05% | |||||
| Barclays | 0.01% | |||||
| RBS | 0.10% | |||||
| Santander | 0.30% | 0.40% | ||||
| Big 5 Average | 0.094% | |||||
| United Trust Bank | – | 0.95% | 1.05% | 1.15% | 1.60% | 2.20% |
What should SMEs do to make the most of their deposit balances?
Andrew Hagger has some straightforward advice – split and switch.
In March 2022 pay.uk reported that 74% of SMEs were aware of the Current Account Switch Service is available to SMEs, and 35% of SMEs are actively considering switching now. SMEs with between 11-50 employees were much more likely to be considering switching their current account (58%) compared with sole traders (15%).
Mr Hagger suggested the smartest companies will consider dividing their deposit balances between accounts with different notice periods to take advantage of higher interest rates.
He said: “I appreciate that locking some funds away for 1 or 2 years in a fixed rate bond won’t suit some businesses, but a ‘savings mix’ should be carefully considered. Businesses able to put most of their funds out of reach for such timescales will be rewarded with rates of up to 1.60% (1 year) and 2.20% (2 years).
“For example, if a typical UK high street bank SME customer has £75,000 sitting in an instant savings account it would earn just £70.50 interest in 12 months (at 0.094%). However, splitting the funds into 4 separate pots and still keeping some in an instant access account for emergencies could generate over £900.00 more interest in a year.
How to do it…
The mix below would deliver an annual return of £984.10 based on the current rates offered by United Trust Bank – that’s more than 13 times greater than if it were to be left in an SME instant access account from one of the Big 5 providers.
| Balance | Account | Interest rate p.a | Interest payable p.a |
| £75,000 | High Street Instant Access | 0.094% (Typical Big 5 average) | £70 |
| Total annual interest | £70 | ||
| £15,000 | High Street Instant Access | 0.094% (Typical Big 5 average) | £14 |
| £20,000 | UTB 100 Day Notice | 1.05% | £210 |
| £20,000 | UTB 1 Year Fixed | 1.60% | £320 |
| £20,000 | UTB 2 Year Fixed | 2.20% | £440 |
| Total annual interest | £984 |
Nicholas Wakefield, Head of Deposit Products at United Trust Bank, who commissioned the research commented:
“UK companies are affected by the same price rise pressures as consumers. Increasing energy and fuel costs for example are squeezing margins and companies should take steps to ensure they’re making the most of the money they have. It’s quick and easy to open a separate business deposit account or accounts with other providers offering much more competitive rates of interest to SMEs. ”
Andrew Hagger, Savings Expert and Founder of MoneyComms commented: “This research and my calculations highlight the potentially huge financial benefits to SMEs of switching excess credit balances from the high street banks to other providers offering more options and better interest rates. It could be worth hundreds if not thousands of pounds a year moving some funds from instant access to longer term options if it still gives them the liquidity they need.”
Analysis of business savings rates via provider websites was carried out from 9th-11th May 2022, looking specifically at the following business savings product areas:
The data for the whole SME savings market was collated and an average for each product area was calculated as follows
Instant Access – 0.30%
90/95-day notice – 0.63%
100-day notice – 0.83%
120-day notice – 0.73%
1 Year fixed bond – 0.90%
2-year fixed bond – 1.41%
To find out more about our Business Accounts for limited companies, sole traders, clubs, societies, trusts, credit unions and pension funds, please visit our website’s dedicated Business Savings Account section.
Although this email and article may contain helpful information and tips, these are not personal advice. You may wish to seek advice from a financial advisor if you are unsure what’s best for your own personal circumstances.