Failing to shop around for better deposit rates to cost UK SMEs £4bn
UK small and medium-sized businesses are set to miss out on a whopping £4bn in interest in the next 12 months because their cash reserves are languishing in low-interest accounts, a new study reveals.
A major new report from CEBR, the Centre for Economic & Business Research, commissioned by Flagstone, the UK’s largest cash deposit, reveals SMEs are missing out on billions of pounds every year by not shopping around for a better rate for their excess cash – the reserves not required for the day to day running of the business.
The extra £4bn which businesses could earn if they moved their money to a better deposit account would be enough to fund for a year the salaries of more than 104,000 extra workers on the UK average annual salary of £29,588.
With SMEs currently holding an estimated £199bn in instant-access accounts and receiving an average rate of 0.41%, they are on track to earn £578m in interest in the coming year. However, if they were to switch to a market leading instant-access rate of 1.40%, they would earn £2.8bn in total in the next year; £2.2bn more than they are currently expected to earn.
Further, UK SMEs currently hold an estimated £140bn in fixed-rate deposit accounts earning on average 0.85%, meaning they are expected to earn £1.2bn in the next 12 months. But if SMEs instead switched to the market-leading 2.10% one-year fixed rate, they would collectively earn £2.9bn in interest in the coming 12 months; £1.7bn more than they would have otherwise.
It means, in total, firms are expected to miss out on £4bn in interest in the next year because their money is languishing in low-rate deposit accounts.
Bank of England and UK Finance data show that UK SMEs have increased their cash balances from £19bn to £339bn between 2011 and 2019, and the YouGov survey which forms part of the CEBR study confirms that more than a third (34%) said that Brexit had been a factor in the management of their cash balances over the past three years.
The YouGov survey of over 500 UK SMEs, also reveals that the greatest barrier to getting a better rate on their cash deposits is the hassle associated with opening new accounts. 39% of businesses surveyed said that this was a reason for not switching their money,
Andrew Thatcher, co-founder and co-managing partner of Flagstone, said:
“This study shows that apathy towards cash deposits does not just affect individual savers, but also the nation’s businesses too. Each year, UK SMEs are missing out on billions of pounds of interest income because they are not proactive in moving their money, often citing the process of researching and opening new accounts as prohibitively complex and time consuming.
“Firms that forego this extra cash could be missing out on the chance to increase profit, grow their business by hiring extra staff, or invest in productivity improvements. This may also be damaging to the UK economy given that SMEs account for 99.9% of all UK private sector businesses and 60% of all private sector employment.