Are low interest rates costing the UK’s small businesses?

Around a third of business accounts are paying less than 0.1% interest which could be costing the UK’s SMEs, new research has revealed.


Analysis from Cambridge and Counties Bank discovered that 31% of these accounts offer 0.1% or less gross or annual equivalent rate (AER) on balanced of up to £10,000.


As a result, many small businesses who do not have large sums of cash available, could be losing out on what they could earn in interest.


According to the British Banking Association, some £65 billion is currently kept in deposit accounts and this means firms could be losing millions of pounds in interest a year.


The issue is compounded by a low number of banks which offer gross or AER rates that are above 1% – only 10% of available accounts offer such a rate.


Cambridge and Counties also revealed that just one in every hundred business deposit accounts is paying 1.5%.


It means that not only are the UK’s five million small businesses struggling to access finance, but that they are also facing low rates on the money they deposit.


Shopping around can help to find the best rates among around 200 deals that are available but the market is not conducive for finding very high rates.


The use of business deposits is increasing – it was up 6% in the year to the end of 2014 – but firms could still be losing out.


Reports that business owners are unable to find the necessary time to carry out administrative tasks only worsens the situation.


Finance raised in the form of interest could provide a financial buffer against the threat of any monetary issues that could adversely affect a company.


It is therefore an essential aspect that businesses should consider as it could provide finance to protect against corporate insolvency in the long-term.


A failure to take advantage of better interest rates could place more pressure on current finances and leave little money to deal with future problems.


The additional finance could be used to support creditors or shareholders, or to drive growth, while safeguarding against any financial threats.


The Competition and Markets Authority is already investigating the current climate to see if more can be done, but for now SMEs should be actively encouraged to hunt for the best deals.


By Phil Smith


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