Small to medium sized businesses are losing out by leaving their cash with banks offering low interest rates, according to a recent YouGov survey.
With inflation running at 2.9% 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% for short term deposits, according to the cash deposit platform provider Flagstone, which commissioned the survey.
Fifty-three per cent of the UK’s SMEs are earning less than 0.10% on their cash and only 8% are earning more than the Bank of England base rate. Unsurprisingly 76% are dissatisfied with the interest rate they are getting from their bank.
Thirty-six 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 5.5 million accounts, more than 80% are with the ‘Big Four’ banks paying 0% interest.
When asked about the reasons for leaving their cash in low interest accounts, 40% of senior managers felt that the paperwork and administration involved in opening new bank accounts was too much hassle.
“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,” Flagstone co-managing partner Simon Merchant said.
“Now the owners of these businesses need to take matters into their own hands through a discipline of holding multiple accounts offering higher rates that they can switch between.”
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