Big banks deny UK SMEs vital cash as savings gap grows again
British SMEs are being ripped off by big high street banks that are continuing to saddle them with poor rates that see them missing out on thousands of pounds of interest each year.
After an Autumn Budget that signals tough times ahead for many SME’s, it is more important than ever that small businesses get the most out of their money.
Since January 2023, Allica Bank’s independent Monthly Savings Tracker has been monitoring average savings rates offered by the big banks, relative to the savings interest rates offered by challenger banks for comparable SME savings products.
The latest figures show that SMEs continue to be exploited by the big banks, as October sees the gap between the interest SMEs are offered by big banks and what they are offered by challengers widen. The difference between them now stands at 3.02%
Big British banks now offer an average interest rate of just 1.35% to small business on their savings, down from 1.39% last month.
In comparison, challenger banks remain competitive, offering rates of up to 4.37% on the same cash.
This means that for the second time since Allica began its market research, the savings gap has breached 3%.
In real terms, this gap equates to interest of £2,268 each year for small businesses with average savings of £75,000.
It’s clear that big banks are exploiting the lack of transparency in the market to saddle SMEs with rates which pale in comparison to the offerings of competitors.
This lack of transparency also allows big high street banks to offer ‘premium’ interest rates to large corporates. According to Allica’s 2023 ‘The Great British Savings Squeeze’ report, corporates on average receive an interest rate that is 2.1% higher than the same offered to SMEs.
Taking this discrepancy into account, as well as the fact that many SMEs keep money in accounts offering no interest at all, Allica now calculates that if all UK SMEs are taken together, they are losing out on a staggering £9bn a year in ‘missing’ interest on their savings.
With the latest budget painting a difficult economic picture for British SME’s, it is more important than ever that vital funds aren’t left untapped in the pockets of the big banks.
To address this, Allica is calling on new measures to be introduced in order to enhance market transparency, so that all UK SMEs can get a fair deal on their finances.
Allica is calling on government and regulators to force big banks to notify their SME customers of the top rates in the market and where they can be found.
Richard Davies, CEO of Allica Bank, said: “Our latest data continues to underscore the need for an overhaul of the status quo, as UK SMEs continue to be short-changed by the big banks and their meagre interest rates. With the savings gap once again breaching 3%, there has never been a more appropriate moment to make steps towards a more transparent savings market.
“The current state of the market means that the average UK SME is missing out on an average of £2,268 a year. For more established SMEs, the impact of this can be even greater. According to our data, a business with £1m in the bank would be losing out on an average of £30,200 if it banks with one of the big six.
“Business banking needs to change for the better – and we can start by making sure that all businesses have a clear picture about how to get the best deal on their savings. Better rates are out there – but customers need to know where to look.”
Allica’s research tracks the top rates offered every month by the challenger banks and contrasts it against those rates offered by the six largest incumbent providers in the UK – Barclays, HSBC, Lloyds, Nationwide, NatWest and Santander.
The data has taken from Moneyfacts.co.uk as well as the individual banking sites.
Allica Bank has long been calling on the wider banking industry to give small businesses a better deal on their savings, allowing this money to be pumped back into local economies. The firm recently wrote to the Treasury Select Committee (TSC) asking MPs to investigate the lack of transparency in the business savings market and has since launched a campaign – The Great British Savings Squeeze – to tackle the issue, which has seen support from the FSB, IoD and other leading industry bodies. It is calling for people to sign its petition.
