Finance 18 May 2016

Lazy Money – Why finding better ways to save has never been easier

Dines said too many firms end up with poor marketing and design at the outset, and then have to spend out and get it redone later on
Small business owners should take time to shop around for the best ways to save

Writing for Business Advice, managing director for savings at challenger bank Aldemore Simon Healy takes a closer look at how and why small businesses are saving, and why it pays to shop around for the right deal.

It has only been in the past couple of years that we have begun to develop a better understanding about how small businesses work. The media helps to raise the profile of issues faced by startups and small businesses, but more generally, politicians, trade bodies and the general public have taken more interest in the day-to-day pressures and concerns of Britain’s smaller firms.

Understanding when small business owners are most likely to apply for finance to when they are most likely to log-in to check their balances is an important way of building up a picture about the ventures. However, one aspect which continues to be overlooked is how and why small business owners save money.

Recent Aldermore research showed that more than a third of business owners don’t know what interest they received on surplus cash, up from a quarter who were asked the same questions last year.

Additionally, 42 per cent received between 0-0.5 per cent in interest, again an increase from 28 per cent last year. Why is this important, particularly when interest rates remain low across retail and SME markets?

To put it into perspective, the most recent figures from the British Banking Association (BBA) show that at the end of December last year, cash held by small firms in current and deposit accounts totalled £163.5bn. Businesses earning nothing or uncertain of what the actual rate may be missing out on millions of pounds in interest per year.

One problem is that the concentration of small firm owners holding onto surplus funds with the same bank as their current account remains stubbornly high. More than eight out of ten small business owners currently have such an arrangement.

This problem reflects a wider structural and competitive issue with the current banking landscape. Whilst many smaller firm owners simply do not have the time to shop around, some have often felt that using alternative banks may harm their relationship with their current banking provider, and often find it easier to accept a lower rate in return. It is hoped the new investigation into retail banking and small business services by the Competition and Markets Authority (CMA) addresses many of these issues.

The survey also revealed that small business owners aren’t reviewing their savings as regularly as they did last year. This year’s survey found that 55 per cent of businesses review their accounts at least once a year, compared to 62 per cent in 2015. Interestingly, almost half feel the potential returns aren’t worth the effort meaning many small businesses are simply not shopping around to get the best deal or find the process too much of a hassle.

It’s important to remember that shopping around has never been easier. Alternative lenders are providing better services, better products and better rates. Opening a new account doesn’t require you to go into a branch either – it can all be done online, often in less than fifteen minutes.

To give small business owners one piece of advice – review the rate of interest you’re currently receiving on surplus funds. Check an independent site such as Savings Champion or a review tool like the Business Saving Rate Checker. Our tool can tell you the exact amount of interest rate your business is receiving on either your current or savings account.

If there’s one thing we’ve learnt about small businesses its that no one single business is the same as another. However, I do know that whether we are shopping for a holiday, energy or broadband, we’d all shop around for the best deal. There’s no reason why one shouldn’t do the same when it comes to your business savings.

Simon Healy is managing director for savings at Aldermore.

Read on to find out why alternative financiers are taking a growing proportion of the small business lending market.

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