Choosing the right type of savings account for your business isn’t always straightforward – but this doesn’t mean you should leave your funds languishing in a low-paying savings account or even in your current account.
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?
Here at Savings Champion, our mission is to give you the information you need to help you decide which type of account is right for your business – so read on for a brief guide to the different options available.
Of course, if you are still unsure of which account is best for you, you can email us or call free on 0800 011 9705.
Instant Access or Easy Access Accounts
An Instant, or Easy Access account, is perhaps one of the most straightforward account types and one which is useful for a number of business needs – most obviously the need for liquid funds for immediate use.
These are simple savings accounts that allow you to withdraw cash without having to give notice. As a result, the interest rates are often lower than on other types of account – though of course the rates vary considerably between providers.
Since the introduction of telephone and internet accounts, instant access accounts are often referred to as easy access accounts. The reason is that these accounts allow you to transfer money to another account or to request a cheque through the post, so there can be a slight delay in actually receiving the money - so the term instant access could be seen as slightly misleading.
Whilst business easy access accounts are, on the whole, straightforward and easy to understand, there are still some aspects of the terms and conditions of individual accounts to be aware of. So, it is important to check exactly what you are getting into.
Although not as common a feature in business accounts as in those available for personal customers, there are some easy access accounts that include introductory bonuses, so the interest rate drops after an initial period.
The key here is to be aware that the rate will drop like a stone after the initial period, so make a point of diarising the end date, so that you can then switch to a better option.
Another key thing to be aware of is that with some easy access accounts there is a penalty for making more than a specified number of withdrawals, often in the form of a much lower interest rate paid. Again, this is not as common amongst business accounts, but it is still something to be wary of.
These accounts are still worth considering, particularly if the interest rate on offer is higher, but you need to make sure that you will not need more regular access to the funds and plan your withdrawals carefully.
This type of business savings account requires you to give notice in order to access your money without a penalty and generally pay better rates of interest than easy access accounts, though this is not always the case.
These accounts could be ideal when you are able to plan ahead for expenditure and are an option for funds that you don’t need immediate access to, in exchange for a higher return.
There are a variety of different notice periods to choose from and, generally speaking, the longer the notice period is, the higher the interest rate you receive.
Notice periods usually range from 30 to 120 days, although there are some accounts on the market that require 6 months or even a year's notice.
Although less common, some business notice accounts allow the option to forego the notice period by paying a penalty, typically a reduction of interest equivalent to the notice period.
This can be taken from the capital if insufficient interest has built up prior to access, so it’s important to plan carefully to avoid this. However, as this option is less common, you need to check this before opening an account and possibly even compromise on return if it is an important feature for your business.
Notice accounts, alongside fixed rate bonds, are a key area where the new breed of so-called ‘challenger banks’ compete strongly. Challenger banks such as Redwood Bank and United Trust Bank have dominated our notice account best buy table over the last few years, injecting some much-needed competition into this area of the market.
For some businesses, the option to not access funds immediately is important to help get a higher return on money that is not needed straight away, without having to tie the money up for a longer term.
Fixed Rate Accounts
There are many different terms used to describe this type of business account, most commonly Fixed Rate Bonds, Fixed Rate Deposits or Fixed Rate Savings.
These are accounts that pay a fixed interest rate for a set term, usually ranging from six months to five years, although in the past there have been providers that have offered fixed rates for as long as seven years – though this is far less common.
Some of the best interest rates available can be found amongst fixed rate accounts, as you are essentially sacrificing access to your funds for a better return.
It is also one of the most competitive areas of the business savings market, especially amongst the newer 'challenger banks', as it is a great way for the banks to encourage funds in and also to know how long the money will be held for, allowing these providers to plan ahead effectively.
Normally you cannot access the funds at all until the end of the term, although there are providers that offer some access during the term.
Make sure you check the terms and conditions of individual accounts before going ahead.
Whilst in a few cases, a limited number of penalty-free withdrawals might be offered before maturity, it’s more usual for there to be a hefty penalty, equivalent to a loss of interest earned over a defined period or a reduction in the interest rate that is applicable to the funds held in the account.
Other providers state that funds can only be accessed by closing the account completely, again subject to a penalty or interest rate reduction. It is really important to note that a penalty can be taken out of the capital originally invested if sufficient interest has not been earned at the time of withdrawal.
This is why it’s important to make sure that you are able to lock funds away for the full term if you are looking at fixed rate accounts for your business.
Fixed rate bonds offer some of the best rates on the market and so can be an effective way to maximise the returns you receive on your business’s funds, but they will require more planning on your part.
It is a competitive area of the market, so it is advisable to keep a close eye on our business fixed rate bond best buy table on a regular basis.
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.
For those with larger amounts to deposit, by opening a number of different accounts with different providers, you can maximise returns and ensure protection of those funds through the Financial Services Compensation Scheme (FSCS) – for more on the FSCS, take a look at our handy guide.
Of course, opening a range of different accounts and keeping on top of the interest rates can take a significant amount of time and resources, so this is where Savings Champion can help.
Our Cash Advice Service takes the hassle out of opening multiple savings accounts to maximise returns and keep within the FSCS limits, saving your business valuable time and resources, as well as money.
So, call us today on 0800 011 9705 to speak to one of our savings advisers and see how we can help your business to make the most of its funds.
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