HSBC and Royal Bank agree to pay interest to small businesses

Royal Bank of Scotland and HSBC yesterday became the last Big Four banks to give details of how they would improve their services to small business customers, with both pledging to pay 1.5 per cent interest on current accounts from 1 January.

RBS, which owns NatWest, is the largest provider of business current accounts in England and Scotland. It has in the past few months come under intense pressure to say how it would respond to a stinging Competition Commission ruling in March on the sector.

At that time the Commission accused Lloyds, Barclays, Royal Bank of Scotland and HSBC of operating a complex monopoly in England and Wales and not giving small business customers a fair deal.

The report, endorsed by the Government, said the Big Four must start paying interest on business current accounts or scrap charges for services such as cheque cashing.

Until recently, most large banks did not pay any interest on current accounts and have made substantial profits from charges for services to business customers that are much higher than those paid by individual customers.

RBS and HSBC said they would introduce interest on current accounts from 1 January next year. RBS, which controls 30 per cent of small business accounts in the UK, would not say how much the measure would cost.

HSBC, which controls 18 per cent of the small business banking market, said the promise, coupled with a range of other improvements such as a new business saving account, would wipe £80m off its profits every year.

Lloyds has already announced that it would opt for interest on business accounts, at an estimated cost of £100m annually. Barclays started to write to customers a few weeks ago saying they could either choose interest or lower money transmission charges, with the change expected to cost it roughly £150m a year.

RBS yesterday confirmed it would extend the improved offer to all customers, including those in Scotland, although the Commission only enforced the change south of the border.