Choosing the right type of savings account for your business isn’t always easy – but this doesn’t mean you should leave your funds languishing in a low-paying savings account or even in your business current account.
According to a recent report from Allica Bank, SME’s (small to medium sized enterprises) have £273 billion of cash on deposit – and £149 billion of this is sitting in current accounts earning no interest at all. Although some of this will of course need to remain in the current account for day to day expenses, considering there are business easy access accounts earning at least 4%, SMEs are potentially missing out on billions of pounds in interest.
There are a number of different types of savings account you can choose from, which can be tailored to your business’s circumstances and plans. This may depend on whether you need immediate access to the funds or would be able to give notice in order to access the money. Or perhaps you would prefer to know exactly how much interest will be received over a set period of time?
We’ve put together some top tips that will hopefully help your business secure thousands more in interest, while reducing the risk of holding too much with one provider.
1. Earn more interest by shopping around.
It may sound obvious, but it can be tricky to find information about the best business savings accounts and the time taken to scour the market can sometimes even cost more than the extra interest earned.
Savings Champion’s Best Buy Tables cover the whole UK savings market and are totally independent.
2. Earn more interest by being more flexible.
Decide how flexible you can be about access to your company’s deposits.
How much cash does your business need to be able to access within just a few days? This amount should be deposited into easy access accounts.
If you can lock some away for longer in fixed rate bonds and/or notice accounts, it could improve the interest you can earn.
Notice accounts will normally require waiting a set notice period to access your cash, however some will allow you immediate access, subject to a penalty equal to the interest that would be accrued in the notice period.
The notice period doesn’t automatically start when you deposit the money, so you can leave it earning better rates until you need it. But this means that planning ahead is important, so that you can give the notice required before making a withdrawal.
Fixed rate accounts often pay better rates than easy access or notice accounts. Interest rates are fixed for the term of the bond, so you know what you are going to earn from the outset.
However, normally no withdrawals are permitted within the term, so you need to be happy to leave your money untouched.
3. Reduce risk by taking advantage of the free protection offered by the Financial Services Compensation Scheme (FSCS).
Should your bank or building society fail, the maximum pay-out is ÂŁ85,000 per business, per banking licence, regardless of the size of your business.
Prior to 2015 only smaller businesses were protected, but this is no longer the case.
If your business has savings of over ÂŁ85,000 and wants full protection, this will require extra administration, as you may need to open and monitor multiple accounts and switch when fixed rate bonds mature, bonuses end, rates drop or a better-paying account enters the marketplace.
However, do not let this extra administration put you off as the reward is the peace of mind of knowing your business’s deposits are safe.
When you need to open a new account, check there are no clashes with amounts held in existing accounts and therefore the overall amount with any one licence does not exceed ÂŁ85,000.
There are some providers that share a licence, so feel free to use our handy tool to check this.
4. Let a cash platform take the strain
It can be tedious opening and managing multiple business savings accounts as there can be quite a bit of paperwork. Providing articles of memorandum, annual accounts, ID for all the directors and shareholders etc, so wouldn’t it be great to have to go through that process just once, then have access to multiple competitive cash savings accounts that can be opened with the click of a mouse.
Cash platforms have the potential to transform the savings market once people truly understand the benefits. They’re not necessarily for the rate chasers, as they are not whole of market, although they do often offer market-leading exclusive accounts – and sometime access to personal account rates, with business money! But where the real benefit comes in is for those savers and businesses with larger sums of money, who don’t have the time or energy to keep monitoring, switching and splitting money between accounts and providers to improve the rates they’re getting and keep that money protected by the Financial Services Compensation Scheme (FSCS).
If you want to know more, email us at [email protected] so we can see if a cash platform could be the solution to help your business earn more interest.
5. Earn more interest by checking the small print carefully and diarising bonus end dates and maturity dates.
Some business accounts will come with strings attached, such as a bonus rate which drops away after a certain period.
While it can be beneficial to have the initial rate bolstered by a bonus or to lock into a good rate using a fixed rate bond, you will need to diarise when it ends so you remember to review your account at that time.
6. Earn more interest by regularly monitoring your accounts.
How will you know if your bank or building society drops your interest rate?
They should let you know, but the quality, standard and timing of the information that customers receive will vary from provider to provider – as well as the way the information is communicated.
To be sure, you will need to check your rate regularly and if something better comes along, switch.
7. Take the balanced approach.
Of course, there’s nothing to say that you need to stick to one type of account. Careful analysis of your business’s cash reserves, alongside your future plans and your business’s cash flow forecast could be extremely beneficial when planning your savings strategy.
Dividing up your reserves between short-term and longer-term goals and plans would enable you to take advantage of the higher returns on offer amongst notice accounts and fixed rate accounts, whilst also ensuring that enough money is kept liquid and accessible in easy access accounts.
This can be taken further by even choosing a range of fixed rate terms and notice periods to allow for future reviews and changes to your circumstances.
What have you got to lose but interest?! Check out our best buy tables – or if you have more than £50,000 in cash that could be working harder, contact us to request an illustration of how much more interest your business could be earning via a cash platform.
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