Figures from a YouGov survey show small to medium sized businesses (SMEs) are losing out massively by leaving their cash with banks offering low interest rates.
With inflation running at 2.9 per cent and none of the Big Four banks having reflected the recent base rate increase in their business current accounts, inertia will come at a cost for SMEs given that some UK ‘challenger’ banks are now offering rates of up to 1.20 per cent for short term deposits, according to the cash deposit platform provider Flagstone, which commissioned the survey.
53 per cent of the UK’s SMEs are earning less than 0.10 per cent on their cash and only 8 per cent are earning more than the Bank of England base rate. Unsurprisingly 76 per cent are dissatisfied with the interest rate they are getting from their bank.
To make matters worse, 36 per cent of these businesses hold all their cash, including excess cash not required for the day to day running of the business, in their business current account, and of the £104bn held in these 5.5m accounts, more than 80 per cent are with the ‘Big Four’ banks paying 0 per cent interest.
When asked about the reasons for leaving their cash in low interest accounts, 40 per cent of SME Senior Managers felt that the paperwork and administration involved in opening new bank accounts was too much hassle.
Simon Merchant, Co-Managing Partner at Flagstone said: “We knew that the persistent low interest rate environment combined with the complexity of deposit account opening processes had created client inertia and this research reveals the scale of the problem for SMEs.
“Now the owners of these businesses need to take matters into their own hands through a discipline ofholding multiple accounts offering higher rates that they can switch between.”