If you don’t have a business savings account, then it might be a good time to consider one.
But why now?
Interest rates on savings accounts have been rising throughout the year, as a result of the Bank of England’s attempt to tackle inflation by increasing the base rate to 5.25%.
Consequently, there has been a lot of attention given to personal savings, but SMEs should also consider their savings pot as rates are still competitive.
In our annual business statistics report, we found SMEs account for more than 99% of all the businesses in the UK, so it’s important these businesses stay strong and grow throughout 2023 and beyond.
Last month, the Bank of England also released its latest financial stability report and it stated that: “Overall, UK businesses are expected to remain broadly resilient as the impact of higher interest rates come through, but there will be increased pressure on some smaller and highly indebted businesses.”
The good news is that the annual growth rate of borrowing for SMEs decreased slightly for the fifth consecutive time from -4.2% to -4.3% during May and June.
This could indicate that SMEs are in a more stable position if the rate of borrowing is decreasing month on month.
With this in mind, it’s always worth evaluating your finances to see if there is an opportunity to start saving, or to utilise a savings pot you might have already acquired.
A business savings account can help grow your business in many different ways, but the main benefit is earning interest. If your money is sitting in a low-interest current account you could be missing out on some extra income each month.
However, as well as earning more money for your business, a business savings account can help you to save for future expenses. It’s always a good idea to have a rainy day savings pot, especially for a SME, as you never know what costs could be around the corner.
A business savings account can therefore give you peace of mind that you’ll be covered for unplanned expenses, but also that you’ll have the collateral for projects that can expand your business. For example, savings can be used for a marketing and PR campaign if you would like to promote your company in the future, or a new bit of equipment letting you offer customers something new.
A savings account can also be used to keep track of your business spending and be a safe place for the money you’ll need to use for business taxes. You’ll need to set aside an amount of money each month to pay these taxes, and a savings account is the perfect place.
Most business savings accounts are also covered by the FSCS (up to £85,000), so your money will be protected by the government scheme if the provider goes bust. If you have more than this amount then it’s worth opening a new account for each £85,000.
The final point to consider is that a savings account puts your business in a strong financial position, as not only are you able to pay your staff, rent and other bills, but a savings account will encourage you to plan for a profitable future.
Business savings accounts work in a similar way to personal savings accounts, and there are different types to explore.
For example, instant and easy access, notice and fixed-term are also available for business savings accounts.
An easy access business savings account is useful if you would like to earn some interest on your savings but then it has the flexibility of accessing the money when you need it.
Shawbrook currently has an easy access business account at a variable interest rate of 3.25%, which can be opened by depositing £1,000. This savings account also has a limit of £85,000 and the minimum account withdrawal amount is £500, but if your business suits these terms it’s worth considering.
Alternatively, a notice savings account offers a higher interest rate, but you’ll need to follow the notice term to avoid any penalties.
United Trust Bank currently has a 100-day notice account for businesses with an interest rate of 4%, and you’ll need a minimum balance of £5,000 to open it. A notice savings account works well if you know exactly when you’ll need the money - for example if you’re planning to invest in new equipment, rather than to cover an unexpected bill.
Finally, businesses can consider a fixed-term savings account. This type of savings account is best for businesses that might not need the money for a long period of time, as you can then take advantage of competitive interest rates.
Close Brothers has a 1-year fixed-term bond at 5.10%, but the minimum opening balance is £100,000, so only worth considering if you have a large lump sum to save.
If your business has a smaller amount of free cash, Redwood Bank’s 1-year savings bond has an interest rate of 4.8% and it can be opened with £10,000.
The good news is that there are plenty of options for business savings accounts, but it’s important to compare all business savings accounts to decide which is the right fit for your organisation.
As a trained journalist, Lucinda has spent the past 10 years writing and editing content for regional and national titles, including The Mirror, WalesOnline and Manchester Evening News. She is now a personal finance editor and specialises in savings, helping people to make confident financial decisions so they can save for what matters most.