Small Talk: Firms that have cash are finding it tough as well

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.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent