Frugal small businesses may find substantial interest advantages by opting for more intelligent banking account selections.
Small and medium-sized enterprises (SMEs) are being encouraged to review their current business savings accounts and consider switching to more transparent, accessible options that offer flat interest rates.
According to recent analysis, many easy access business savings accounts use tiered interest rates that require high deposit levels to earn the best rates. This can be challenging for SMEs with limited reserves.
The Impact of Tiered Interest Rates
14 out of 65 providers of easy access business savings accounts only offer their best interest rates on higher deposit levels. In one case, the threshold for the top rate is £10million. Tiered interest rates are something SMEs should be aware of across the whole sector, including from the big six UK banks, as four of them also use tiered interest structures.
Flat-Rate Accounts: A Better Option for SMEs
For SMEs wanting to avoid tiered structures, the best approach is to look for business savings accounts explicitly advertising flat interest rates with low minimum deposits and no tier thresholds.
One example of a flat-rate account is the business savings account described by a U.S. provider, which requires a $250 minimum deposit, charges a small fee if balance requirements aren't met, and offers a flat interest rate.
In the UK, Cynergy Bank provides a business current account that earns interest on every penny in the account, offering unlimited free transactions, a free first year, and FSCS protection up to £85,000. While it operates more like a current account, it provides a straightforward flat-rate approach to interest on balances.
Key Points for SMEs
When looking for flat-rate, easy access business savings accounts, consider the following:
- Flat Interest Rate Account: Exists with conditions (e.g., $250 minimum, monthly service fee if below minimum)
- Tiered Interest Drawback: Many accounts only offer best rates for very high balances, unsuitable for small SMEs
- UK Example: Cynergy Bank business current account – earns interest on full balance, free first year
- Access and Flexibility: Most easy access accounts limit withdrawal frequency but offer daily interest accrual
The Benefits of Flat-Rate Accounts
By switching to a top-paying, non-tiered account, an SME could potentially increase its earnings significantly. For instance, by switching to a flat-rate account, a business could increase its annual interest earnings from £209 to nearly £400. Over two years, the same business could potentially earn an additional £831.
Cecilia Mourain, Chief Savings Officer at Moneybox, emphasizes the importance of better savings options for business resilience. By understanding and considering tiered interest rates, SMEs can make more informed decisions about their savings and potentially improve their cash flow.
The data from Moneyfacts highlights an opportunity for small businesses to improve their cash flow by making informed decisions about where to hold their funds. SMEs are encouraged to make more informed decisions about where to save by understanding tiered interest rates.
- SMEs might want to consider exploring flat-rate business savings accounts at ffnews.com, as they can potentially offer significant interest earnings, such as increasing a business's annual interest earnings from £209 to nearly £400.
- For personal-finance management, it's crucial for small-business owners to be aware of the tiered interest rates often found in business savings accounts, particularly those offered by the big six UK banks. Flat-rate accounts, like the one provided by Cynergy Bank in the UK, might be a better option for SMEs with limited reserves.
