business bank savings Interest rates

NickTheAccountant

Hi All
do any if you know why business bank interest rates suck. The highest I see verses personal savings account is 3.5% vs personal where there are plenty offering well over 5%.
For small business owners like me who have to have savings in the bank for Vat and corporate tax this seems really unfair.
why are there no business accounts that can compete with personal savings??
any help most appreciated 👍😊

jaceyboy

Yep its all very bad, but what can you do?!

NickTheAccountant

Flag it up as an issue to government and press and also understand the underlying factors as to why there is no incentive for small businesses to have a savings pot of cash.
No incentive leads to many having cash problems and not being able to pay their debts including taxes and many going out of business.

eskbanker

NickTheAccountant said:

Flag it up as an issue to government and press and also understand the underlying factors as to why there is no incentive for small businesses to have a savings pot of cash.
No incentive leads to many having cash problems and not being able to pay their debts including taxes and many going out of business.

You're not seriously suggesting that many companies are going out of business because savings rates are a point or two below consumer ones?!

NickTheAccountant said:

For small business owners like me who have to have savings in the bank for Vat and corporate tax this seems really unfair.

That's not really saving in the traditional sense though, that's just ring-fencing money that's needed to pay bills - these won't increase with inflation so anything earned on that money between the original transactions and settling the resultant tax bills is a bonus....

NickTheAccountant

I’d just like to understand the rationale behind why they aren’t on a par with personal savings. I end up moving my money out of the bank in a directors loan for several months and then putting it back in before year end but if rates were competitive, I’d keep it in and put into a business savings account. Your better off paying the tax early as HMRC rates are only 2% below base which is 3.25%

k12479

NickTheAccountant said:

I’d just like to understand the rationale behind why they aren’t on a par with personal savings.

Some data (here - https://www.utbank.co.uk/savings-and-deposits/uk-sme-businesses-losing-out-deposit-interest/) says businesses have £167bn in current accounts and £104bn in savings accounts. Based on that it's reasonable to assume, and pretty obvious, that the focus for businesses (and their banks) is day-to-day banking rather than saving accounts.

Furthermore, if your day-to-day banking is critical, then it makes sense to have your spare cash easily accessible if needed - i.e. with your current account provider, rather than spread about. Take a look at the 'How to do it...' section in the link. How many businesses would structure their cash like that? Only the smallest or most tightly controlled, I'd suggest. The fact that several business savings providers do not provide current account services likely exacerbates this.

Taken together, there doesn't appear to be much motivation to compete too hard for business savings.

Hoenir

NickTheAccountant said:

No incentive leads to many having cash problems and not being able to pay their debts including taxes and many going out of business.

Cash flow problems have absolutely nothing to do with the inability to access savings accounts. 

jimjames

NickTheAccountant said:

I’d just like to understand the rationale behind why they aren’t on a par with personal savings. 

As an accountant surely you're better placed than anyone to know that! (That's assuming your name is your profession and not a statement of what you'd like to do)

There is competition in the personal savings market, probably less so for businesses where larger balances are involved and banks don't need to compete for that money.

wmb194

NickTheAccountant said:

I’d just like to understand the rationale behind why they aren’t on a par with personal savings. I end up moving my money out of the bank in a directors loan for several months and then putting it back in before year end but if rates were competitive, I’d keep it in and put into a business savings account. Your better off paying the tax early as HMRC rates are only 2% below base which is 3.25%

They just don't need to compete for business deposits in the same way and businesses aren't good at chasing rates because it's often a hassle to set up accounts. Children's accounts also aren't paying very well compared to adult accounts probably for the same reasons.

You could have a look at Wise's 'interest' offering. It invests your money in a low risk Blackrock moneymarket-like fund that presently yields c.5% but it offers instant access. Someone in another thread mentioned they were using it for some of their business' excess cash but perhaps they were a sole trader and actually using a personal account.

Otherwise a business brokerage account could be used to invest in money market funds.

https://wise.com/gb/business/

https://wise.com/gb/interest/