SME businesses missing out on
credit interest earning opportunities
Andrew Hagger – Moneycomms.co.uk
This latest research, commissioned by United Trust Bank shows that there is £100.1 billion sitting in business deposit accounts and an additional £133.5 billion of SME sight credit balances (current accounts and instant access savings). (Source UK Finance Business Finance Review as of December 2023).
Analysis of business savings rates via provider websites was carried out from 30th April – 3rd May 2024, looking specifically at the following business savings product areas:
- SME Instant Access
- SME 30/45-day notice
- SME 100-day notice
- SME 1 Year fixed bond
- SME 2 Year fixed bond
The data for the SME savings market was collated and an average for each product area was calculated as follows:
| SME Savings Product | Average Market Rate | Average Big 5 Bank* Rate |
| SME Instant Access | 2.50% | 1.44% |
| SME 30/45-day notice | 3.15% | 2.89% |
| SME 100-day notice | 3.62% | No products |
| SME 1 Year fixed bond | 4.48% | 3.60% |
| SME 2 Year fixed bond | 4.34% | No products |
Research by Moneycomms.co.uk 30.04.2024
Uncompetitive big players may dominate SME current account market, but lack of SME savings choice and below average rates mean businesses are getting a raw deal
The savings accounts offered by the main UK high street banks for SME customers remain poor both in terms of number of products available and uncompetitive credit interest rates.
For example, the average instant access account across the’ Big 5’ banks pays just 1.44% (market average 2.50%) and the average ‘Big 5/ bank 1-year fixed rate bond is an uninspiring 3.60% (market average 4.48%).
In many instances, the savings needs of SME customers are simply not being catered for.
My research revealed that high street banking giants, Barclays, and HSBC, were not offering a single business notice savings account or a business fixed rate bond account between them, whilst the 3.60% 1-year fixed rate from Lloyds, Bank of Scotland and Santander were the worst rates on the market.
Big 5 banks offer a poor choice of SME savings options
When you look at SME notice and fixed rate products below it’s a pretty dire situation with the Big 5 high street banks failing to provide a reasonable choice of savings options.
| Account Type | Total Accounts | Total Big 5 Bank Accounts |
| SME Notice Savings | 79 | 8 |
| SME Fixed Rate – up to 1 year | 27 | 8 |
| SME Fixed Rate – 1 Year | 30 | 3 |
| SME Fixed Rate – 2 Years | 13 | 0 |
| SME Fixed Rate – 3 Years | 8 | 0 |
| SME Fixed Rate – 4 Years | 2 | 0 |
| SME Fixed Rate- 5 Years | 7 | |
| TOTAL | 166 | 19 |
Research by Moneycomms.co.uk 30.04.2024
FCA – savings rates under the spotlight
The FCA set out its 14-point action plan on cash savings in July 2023. This is aimed to ensure that banks and building societies pass on interest rate rises to savers appropriately, that they communicate with customers much more effectively and offer them better savings rate deals.
When I contacted the FCA to question whether these rules applied to SME savings accounts, they said: “We do not currently plan separate work on SMEs. However, when considering fair value for savings, our expectations are the same for SMEs and individual customers.”
Business Current Account switching activity remains low
A joint study from the FCA/CMA (last updated 15.11.2006), reported that the largest 4 providers accounted for around 85% of the Business Current Account (BCA) market.
There is some evidence of businesses switching current accounts although numbers are small, with just 24,147 switches taking place in the year ending March 2024 (out of a total of 1.44 million) according to Current Account Switching Service data published by pay.uk.
Personal switching numbers are around 59 times higher, often fuelled by £150 – £200 cash incentives, something not yet replicated in the SME current account market.
Due to a combination of a lack of savings options and being time poor, some business owners will unfortunately take the easy option and keep their credit balances with their business bank account provider with excess funds languishing in current accounts or low-rate instant access products.
The Financial benefits of switching
My calculations reveal the huge potential financial benefits of switching excess credit balances to a better paying account(s) and why it is worth moving some monies from instant access to longer term options if it aligns with the cash flow projections of individual businesses.
Looking at the alarming scale of how much potential interest is being lost, if the full £133.5 billion in business sight deposits was stagnating in high street bank instant access accounts at an average 1.45% the annual interest return would be approximately £1.94 billion.
However, the same funds in a 30/45-day notice savings account (market average 3.15%) would see the figure jump to approximately £4.21 billion.
Taking it a step further and comparing with the market leading rate of 4.10% from United Trust Bank the annual interest return is almost three times greater than the ‘Big 5’ bank average at a staggering £5.47 billion.
By locking some monies away for 1 or 2 years in a fixed rate bond won’t suit some businesses, but those who are able to put funds out of reach for such timescales will be rewarded with rates of up to 5.00% (1 Year) and 4.85% (2 Years).
Each business will have its own financial circumstances and I appreciate that it won’t always be possible or wise the lock away most excess funds, however a ‘savings mix’ may be worth considering, with total credit balances split across several savings products with a range of access limitations.
For example, if a typical UK high street bank SME customer has £75,000 sitting in an instant savings account it would earn just £1,088 in 12 months (at 1.45%).
However, thinking differently and splitting the funds into 4 separate chunks of £18,750 for example, in 40 day notice, 100 day notice, 1 year fix and 2 year fix, this ‘mix’ would deliver an annual return of £3,420 based on rates at the time of publishing (4 product average 4.56%) from United Trust Bank – that’s more than 3 times as much as if it were to be left to stagnate in a ‘Big 5’ high street SME instant access account.
No need to switch your business current account to bag a better savings rate
To enjoy the better rates on offer from non-mainstream providers, there’s no need to uproot the existing business current account relationship (which I appreciate many firms would be reluctant to do due to disruption/inconvenience) but there’s nothing to stop companies opening a separate business deposit accounts with the growing range of more specialist business savings banking providers offering a wider choice of more competitive savings options.
Much of this ‘transferring to a better deal’ can be carried out quickly and simply online including the same day switching of funds so the ‘hassle factor’ is not really an acceptable excuse.
The rewards for switching are more compelling in 2024 as competition for funds grows amongst the more niche and agile savings providers.
The new breed of business savings banks are tweaking rates frequently in the current climate to stay competitive while big banks remain slow to react and continue to pay substantially less by comparison.
Please note the information contained in this report shouldn’t be considered as financial advice and if you’re unsure about how to invest your savings, please seek advice from a professional financial advisor.
*Big 5 High Street Banks – NatWest/RBS, Barclays, HSBC, Santander and Lloyds/Bank of Scotland.