In a nation obsessed with home ownership, savers have long been let down by policymakers' one-eyed focus on mortgage interest rates – never more so than today in this era of unprecedented monetary stimulus when millions of savers are earning negative real rates of return on their money. But while personal savers are beginning to build up a head of steam as they protest at the raw deal they're getting, who is looking out for the interests of small businesses who hold money on deposit?
The predicament of businesses with savings mirrors the situation in the personal banking sector. The debate about banking services is almost entirely concentrated on whether or not small businesses are being denied access to credit. The plight of the very substantial numbers of businesses with sums on deposit, meanwhile, has been completely ignored.
More small businesses than you might imagine are affected. Like their larger counterparts, smaller companies have been reluctant to invest during this ongoing period of economic volatility, preferring instead to hold on to spare cash in case of emergency.
Unfortunately, this cash is suffering an emergency of its own. Thanks to the pathetic rates of interest paid to business savers – far worse than in the individual savings market – their money is losing value every single day. At 2.8 per cent, inflation is running at more than four times the average rate paid on a business savings account – and costs for many small businesses are rising even faster than this headline rate suggests.
Cambridge & Counties Bank, one of several new "challenger" banks launched over the past couple of years targeting business customers, says businesses will collectively earn £1.4bn less interest on deposit accounts in 2013 than in 2008. Five years ago, business customers earned 2.93 per cent on a £10,000 balance in the average deposit account – today they're getting an average of just 0.69 per cent. In part, that reflects the fall in the Bank of England base rate, which averaged 5.5 per cent in 2008, but has been stuck at 0.5 per cent since March 2010. But the average figure also over-estimates the amount of interest that small businesses are really earning on their savings, for the biggest banks pay much less.
Indeed, at Barclays, Lloyds, HSBC and Royal Bank of Scotland, which together account for almost all the business banking services to UK small businesses, savings products – and each institution offers a confusing array of them – routinely pay as little as 0.05 per cent a year. And that's before tax.
Not one of these large banks makes it into the top 10 ranking of savings products for businesses compiled by Moneyfacts, the personal finance data analyst. And while each of them offers fixed-term savings products that do pay higher interest rates to small businesses prepared to lock up their money for a set term, these are almost all uncompetitive too.
There are alternatives, but small businesses need to seek them out. That doesn't always happen; many firms fear they'll jeopardise already precarious relationships with their banks by moving savings elsewhere, though there's no evidence that this is the case.
Santander, for example, offers 1.5 per cent interest on its online instant access savings accounts for business – 15 times more than what's available from the four banks whose stranglehold of the UK market it is beginning to break.
The challenger banks are having an impact too – Shawbrook Bank, another new venture aimed only at business customers, pays 2 per cent on balances of £5,000 or more, though it requires 100 days' notice of withdrawals. Cambridge & Counties pays 1.95 per cent on its new 95-day notice account (the launch of which was the cue for its research into the business savings market).
However, these products are the exception rather than the norm. Far more small businesses are being fleeced by their banks on savings interest than are missing out on access to credit. Moreover, in a lending-obsessed environment, the banks are getting away with it.
ABD bucks the trend with IPO
New listings on the Alternative Investment Market (Aim) continue to be in short supply and IPOs from UK companies are even rarer.
One business set to buck the trend, however, is Anthony Best Dynamics (ABD), which will announce today it has appointed advisers to help make its Aim debut. ABD produces kit for car manufacturers to check vehicle suspension, brakes and steering. It made a profit before tax of £1.8m last year, on sales of £8.9m. An IPO would enable ABD to build new facilities to triple its production capacity, as well as establish new offices in Asia.