SMEs are being ‘squeezed’ by high street banks paying dire rates on savings

New data shows how the Big Banks are paying their SME customers far lower interest rates than their challenger rivals. Small firms could be missing out on £8.5bn in lost interest.

The Great British Savings Squeeze – supported by Allica Bank and backed by the FSB, IoD and other leading organisations – publishes monthly reports showing the difference in savings interest paid to clients of the Big Banks compared to their challengers.

SMEs missing out on ‘£8.5bn’ per year in lost savings interest

The data shows that the SME market is potentially losing over £8.5bn in interest each year.

In its September 2024 report (download PDF), the average instant savings interest rate offered by the Big Banks is a mere 1.39%, compared to the highest rate offered by challenger banks – 4.45%.

This represents a difference of over 3%.

Currently, small businesses have access to the highest instant access savings rates since January 2023

Not only that, but according to the latest data, average challenger bank rates have risen continuously over the past year.

The average rates offered by the high street names have actually fallen over the past few months – see this graph from the campaign’s latest report:

For example, small businesses with savings of £75,000 would earn over £2,200 more in interest by switching from the average high street bank to the average challenger offering.

Minimal effort needed to open a savings account

At Bytestart, we moved our business savings from our high street business bank account to a challenger instant savings account in 2023 – after interest rates rose again from historic lows.

We opened accounts with two challenger banks. The signing-up process was extremely fast and efficient in both cases. The most interest we can earn from our Big Name current account provider is a mere 1%.

If rates are significantly different at any one time, we switch the funds between the two challenger bank savings accounts.

Even if you have a reasonably small sum to deposit into a savings account, there is negligible effort required to open an account these days, and any extra income is surely worth generating – especially when the whole nation is being squeezed from all sides.

The only downside – of course – is that interest on business savings is taxable – like everything else!

How to access the best instant business savings rates

You can find many comparison sites on Google, including MoneySupermarket and MoneyFacts.

At the time of writing, the best instant access savings rate is 4.45%, and many names—including Tide (4.33%), Allica (4.01%), Virgin Money (3.55%), and Aldermore (3.5%)—offer solid rates.

With savings accounts, you don’t need the same features as a current account. Typically, you deposit funds for a period of time – and only withdraw to pay a tax bill, or if you need a cash injection.

We suggest you consider other things besides price when choosing a savings account.

Other things to look out for:

• What is the technology like? This varies a lot between banks.
• Can you access your account via an app?
• How often is interest paid? Annually or monthly?
• Is there a minimum deposit? This is usually £1,
• Does the bank have a free business current account to sit alongside your savings account?
• Are the first £85,000 of savings protected by the Financial Services Compensation Scheme (FSCS)?

Instant savings accounts don’t require notice before you withdraw, but if you want access to even better interest rates and don’t need the funds right away, consider opening a notice account instead.

Read our guide to choosing a business savings account for more tips.