Financial news

SME owners in the UK are due more than £7.5billion a year in ‘missing’ savings interest; business bank Allica Bank has revealed after new research.

Rising interest rates, the cost-of-living crisis and less-than-favourable macroeconomic conditions continue to pile pressure on SMEs – but Allica Bank has found that the biggest high street banks in the UK may be keeping billions from them.

Rising interest rates have seen many calls for increased rates on consumer savings accounts, which has not kept up with the increases seen in mortgage rates. But lesser known is a hidden savings penalty of over £7.5billion a year for SME bank customers.

The hidden savings penalty includes SMEs being denied the same higher savings rates that the big banks routinely offer larger companies.

There are approximately £275billion of SME deposits in the UK. By analysing official Bank of England interest rates alongside interest rate data from individual banks, Allica’s new research has found that around £150billion of SME deposits are currently in current accounts that offer no interest at all.

With this in mind, it is clear that SMEs are being offered far higher rates by challenger banks, including Allica Bank’s own 3.5 per cent instant access rate, which it is currently offering SMEs for regular savings.

Unfair rates?

Meanwhile, £125billion of SME savings are in accounts offering interest, but are subject to a hidden SME penalty because big banks are routinely offering large companies higher interest rates on their savings compared to the rates they offer small businesses.

The average difference between interest rates offered to large companies compared to SMEs is currently more than two per cent (covering both instant access and term/notice deposit accounts).

Overall, this means that SMEs are collectively being denied more than £7.5 billion in savings interest annually:

• £150 billion is denied on 3.5 per cent savings interest = £5.25billion
• £125 billion is denied on average two per cent higher rates available to larger companies = £2.5billion

The variation in interest rates offered to companies of different sizes is driven by big banks exploiting the lack of transparency in the market.

These banks also take advantage of the fact that small business owners rarely have time to shop around to get a good deal, unlike the treasury departments of corporate customers.

Taking action

In an effort to help put a stop to this, Allica has written to the Chair of the Treasury Select Committee, Harriet Baldwin MP, and other Committee members, calling for the Committee to look in closer detail at the UK’s business savings market to ensure:

• all banks are doing their level best to pass on interest rate rises to small firms
• small business owners are treated fairly compared to larger companies
• far greater levels of transparency are introduced into the savings market for SMEs
• Financial Services Compensation Scheme (FSCS) limits are not enabling banks to keep interest rates low – and consider if current FSCS limits should be increased from £85,000 to £250,000 for small firms to remove any potential fears SMEs may have of holding large balances with one single bank.

Allica is calling for a much greater focus on savings rates for small businesses – like there has been from politicians and regulators on savings rates for consumers.

Richard Davies, CEO of Allica Bank, discussed the findings: “Allica’s mission is to transform banking for established SMEs. Sadly, despite these businesses being the engine room of the economy, contributing a third of GDP, they have been neglected for too long and business banking is increasingly impersonal, inconvenient and poor value.

“Our research shows this is particularly true for SME savings, where SMEs are getting a raw deal with the big banks – it’s a scandal they’re missing out on more than £7.5billion of interest on their hard-earned cash every year. We’re determined to drive change in the market – Britain’s established businesses deserve better.”