As important as bank lending is, when it comes to growing the economy and creating jobs, there is nevertheless a distinct lack of attention paid to the savings habits of SMEs and the support available for those businesses with deposits. As the most recent figures from the BBA show, at the end of March 2015, cash held in business current and saving accounts totalled 152bn. This is no insignificant sum and many SMEs rely on these savings to pay down loans as well as other invoices and taxes. The real question is whether SMEs are getting a good deal on their deposits.
According to the Department for Business, Innovation & Skills there are more than five million small businesses, but it’s important to remember that the vast majority of them are made up of less than a handful of people, often individuals. These businesses are focused on their day-to-day tasks and often dont have the time to search for a suitable account, or simply find the whole process too much of a hassle. This ultimately leads them to deposit their money in accounts receiving very low rates or products that dont benefit their business.
For example, from research Aldermore conducted into the savings habits of more than 1,000 small businesses across Britain, a third (33 per cent) said they keep their surplus funds in their business current account compared to 28 per cent who keep it within a business savings account. This may seem like a trivial distinction, but it’s not if you consider that business savings accounts pay a higher rate of interest than business current accounts on average. SMEs need to know that newer banks allow businesses to open savings accounts in 15 minutes or less, as well as paying a better rate than some high street banks. The perceived hassle should no longer be an issue.
Interestingly, while 62 per cent review their savings accounts at least once a year, they dont appear to be moving their money. This may again be put down to apathy, but there remains an issue on competition. 91 per cent of companies that have a business savings account hold it at the same bank as their business current account. Opening an account with a brand you know may seem the obvious option, but SMEs are missing out on millions of pounds by not shopping around or by their banks not providing a clear picture of how much interest they are receiving.
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So, what are SMEs receiving Almost a quarter (23 per cent) admit they currently receive no interest, while another 24 per cent told us they didnt know. 28 per cent said they receive between 0.01 and five per cent. The average rate SMEs received was 0.6 per cent. One only has to look at the best buy tables to see what theyre missing out on, as there are a vast range of savings accounts that cater for SMEs who are happy to lock their money away for a fixed period, as well as for those who need to access it in a moments notice.
If I can give SMEs one piece of advice, it would be to review the rate of interest they are currently receiving on their surplus funds. Check an independent site such as Savings Champion or even review it using the SME Rate Checker on Aldermores website. Our tool can tell you the exact amount of interest rate your business is receiving on either your current or savings account.
When it comes to booking train tickets or a holiday most of us wouldnt hesitate to try and find the best deal. Why shouldnt it be the same when were looking for a savings account Shopping around has never been easier and it’s time that SMEs were given the banking services they need and deserve.
Simon Healy is managing director for savings at Aldermore Bank.