Small firms are ‘missing out on better bank interest levels’

03-Jan-2018 - Last updated on 03-Jan-2018 at 14:19 GMT

Most manufacturing small and medium-sized enterprises receive little interest from their current accounts

Most UK manufacturing small and medium-sized enterprises (SMEs) receive little interest from their current accounts, while many are increasing their risk of exposure by leaving all of their money in one place, a survey has revealed.

Almost two-thirds (65%) of manufacturing SMEs earned interest of 0.1% or less on their cash, and almost half (48%) held all their money in a current account – despite eight in 10 of these accounts paying zero interest, according to the YouGov survey.

Fewer than 10% of SMEs overall earned more than 0.5% interest on their cash held at banks, despite a number of UK banks providing rates of up to 1.2% for short-term deposits, the survey commissioned by financial technology firm Flagstone found.

Potential risk to a business

Concentration of a company’s cash in a single account also represented a potential risk to a business if the value exceeded the Financial Services Compensation Scheme deposit protection limit of £85,000, the company said.

This is not just an issue for small companies, as a quarter of firms with a turnover of £10M or more still held all their cash in their current account and had no separate deposit account for their ‘excess cash’ – surplus cash that is not required for the day-to-day running of the company – Flagstone added.

The historically low interest rates offered by banks were “compounding SME woes”, with uncertainty around Brexit and rising costs adding to the headwinds, Simon Merchant, co-managing partner at Flagstone claimed.

‘Increased risk exposure’

“We commissioned this research because we knew that a persistent low interest rate environment – combined with the onerous and time-consuming nature of deposit account opening processes – had created client inertia, resulting in sub-optimal returns for SMEs and increased risk exposure through a lack of diversification,” he explained.

Despite 86% of SMEs in the manufacturing sector being dissatisfied with the interest rate they were receiving, 40% claimed the amount of time and paperwork involved in opening new accounts was too much hassle.

Flagstone said its online cash platform enabled SMEs to open multiple higher interest and exclusive deposit accounts on completion of a single agreement.

Benefits included being able to choose from more than 450 deposit accounts, it claimed.