Small and medium-sized businesses (SMEs) across the UK are missing out on thousands of pounds in interest every year because of low-paying instant access business accounts offered by high street banks, according to new data from investment platform Lightyear.
The analysis of instant access business account rates from top UK banks reveals that the average rate is just 1.54 per cent – short of the current inflation rate. Some high street banks, such as Metro Bank and Lloyds, offer rates as low as 0.85 per cent and 0.9 per cent respectively.
Notice accounts, which require businesses to lock away their cash for up to 95 days, provide slightly better returns, with an average interest rate of 3.03 per cent. However, this level of lock-in can be impractical for smaller firms that need ready access to working capital to cover late payments or weather disruptions.
This flexibility penalty means that over five years, a business holding £100,000 in an average instant access account would earn only about £8,000 in interest, half of what they could earn in a 95-day notice account (£16,000).
“SMEs are the backbone of the UK economy, but right now they’re being punished by the need for flexibility,” said Wander Rutgers, UK CEO of Lightyear. “In a tough economic landscape, SMEs deserve to be able to earn more from their cash without restrictive lock-ins or penalties. Over five years, this can mean the difference of thousands, which for some businesses could be a make-or-break figure.”
Potential funds
The analysis also highlights the potential of business money market funds, which have historically been available only to larger corporations. These funds invest in low-risk, short-term securities and offer higher rates while enabling businesses to retain instant access to their cash.
For instance, the BlackRock-managed fund available on Lightyear’s platform currently offers a rate of 4.41 per cent, which according to the analysis is significantly higher than traditional bank accounts. Over five years, a balance of £100,000 could generate more than £23,000 in interest, nearly triple what many high street banks offer.
These findings suggest a persistent problem for UK SMEs: balancing the need for flexibility with the desire to see their cash work harder. As more businesses realise how much they’re missing out on, it’s likely the pressure will grow for banks to offer more competitive rates, or for new providers to step in with better options.
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