Figures from a YouGov survey show small to medium-sized businesses (SMEs) are missing out on better interest rates by leaving their cash with the Big Four banks.
According to the survey some of the UK’s ‘challenger’ banks are now offering rates of up to 1.20 per cent for short-term deposits, none of the high street banks has yet reflected the recent base rate increase in their business current accounts and with inflation running at 2.9 per cent, inertia is costing SME’s big. 53 per cent of them 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.
To make matters worse, 36 per cent of these businesses hold all their cash in their business account and of the £104 billion held in these accounts, more than 80 per cent is with the Big Four banks paying zero percent interest.
Seeing potential in this space Virgin Money has announced that it will roll out SME business bank accounts in January 2018. A Virgin Money spokesperson said the space is an attractive and poorly served market. The plans to enter this market, come one year after they initially shelved them due to an uncertain outlook for Britain’s economy following its vote to leave the European Union.
Virgin Money said it intends to target 5 billion pounds worth of SME deposits within five years.
Business accounts are not unique and the banks have been slow to pass on the Bank of England’s 0.25 per cent recent interest rate rise to personal savers. According to the peer-to-peer lending platform, Lendy, UK savers could lose £26.5 billion over the next year, as inflation erodes capital in low-interest savings accounts. It believes many banks are unlikely to pass on the interest rate rise in its entirety and savers need a Plan B to beat inflation, looking at alternative ways to retain and grow the value of their capital.