SME Savings Tracker reveals banks have reduced average interest rates for SME customers

The average savings interest rate offered to SMEs by the big banks has finally moved after being stagnant for the last eight months – but it’s moved in the wrong direction.

An independent tracker, published today by Allica Bank, has revealed that British high street banks now offer an average interest rate of 1.45% to small business on their savings, down from 1.59%.

This reduction has come following Nationwide taking its business savings account “off sale” this month. Given that Nationwide was offering the highest rate of the big high street banks (2.25%), the average interest rate across mainstream incumbent banks has gone down compared to last month.

In comparison, challenger banks are offering rates of up to 4.33% on the same cash.

This means that the average SME with £75,000 of savings that is banking with one of the big banks is missing out on nearly £2,160 a year in extra interest.

For SMEs who have been struggling, that extra cash – which equates to £180 a month – has the potential to make a huge difference to their finances. While for larger, established SMEs, the cost of keeping their cash with the big banks can be significant. For example, a business with £1 million in surplus cash would be missing out on an extra £28,760.

Despite this, many business owners are unaware that their banks are not offering them the best rates.

Allica Bank are calling for this inequality to be addressed and want government and regulators to force big banks to notify their SME customers of what the top rates in the market are.

This will increase transparency in the market, encourage competition, and help small businesses to make the most out of their hard-earned savings.

Allica’s SME Monthly Savings Tracker monitors the average savings rates offered by big banks compared to the savings interest rates offered by challenger banks for comparable SME savings products.

It has shown a continued and significant gap between the rates SMEs are offered by challenger banks and their larger, incumbent competition.

This data underpins the bank’s previous research, which found that SMEs are due more than £7.5bn in ‘missing’ savings interest per year, with big banks offering much lower interest rates to smaller firms compared to large companies, and in many cases offering smaller firms no interest at all on their savings.

This growing discrepancy in the rates offered is occurring despite the Bank of England Base Rate remaining steady at 5.25% for almost a year.

Richard Davies, CEO of Allica Bank, said:  “Every month our tracker continues to show that British SMEs are being ripped off when it comes to their business savings. We hope that by bringing attention to this issue we can start to change things for the better and help business owners across the UK to make the most of their savings.

“There are more than five million SMEs in the UK who bring huge value to the UK economy and our communities. It’s time they were given the banking they deserve.”

The 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.

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.