In Focus Consumer Credit
‘UK economy missing out on vital boost’
Small and medium-sized businesses are stockpiling £86bn of surplus cash in low or zero-interest current accounts
Julian Hynd Chief operating officer, Shawbrook Bank
The UK economy is missing out on a vital boost as new research reveals small-and- medium sized businesses (SME) are sitting on £86bn of dormant cash in current accounts paying little or no interest. Our inaugural SME Savings Monitor
reveals this is also causing smaller firms to miss out on billions of pounds in interest. The research found that SMEs, which
make up 99.9% of the UK’s 5.9 million firms, need quick access to 31% of their total cash reserves to cover the cost of day- to-day operations. However, SMEs are actually holding an
average of 57% of their total capital in current or instant-access accounts, rather than fixed-term deals that typically pay higher rates of interest. Calculations carried out by the Centre
for Economic and Business Research (CEBR) reveal that this is causing SMEs to miss out on £4.2bn in extra interest each year. Our SME Savings Monitor provides
insight into the attractiveness of the UK’s cash-savings market, looking in detail at interest rates, SME savings mix, the number of new accounts opened, and SME’s savings ratio. It is also supplemented by a survey of
500 senior SME decision makers to examine how small businesses perceive and behave in the cash-savings market.
Reserves It found that in the last five years SMEs have increased their cash reserves by £66bn to £329bn – equal to 14% of the
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UK’s annual economic output – suggesting that firms are treading cautiously in the current economic and political environment. The latest figures from UK Finance show
some £186.1bn of this money is being held in current accounts, which often pay no or little interest. This compares to the estimated £140.9bn currently being held in deposit accounts.
them to engage more with savings providers and the products on offer.
Flexibility However, a lack of the flexibility and innovation in products available also appears to be having an impact, with 35% of SMEs stating that the ability to choose a deposit term that suits their needs would act as more of a draw. SMEs also called for a reduction in the
Interest rates remain low by historical standards which partly explains why SMEs engagement in the savings market has reduced. More than four in 10 (43%) firms say higher interest rates would encourage them to engage more with savings providers and the products on offer
Further, the number of new business
accounts opened has plunged 21% year-on- year in the second quarter of 2019 – the fastest contraction on record, analysis of UK Finance data reveals. Interest rates remain low by historical
standards which partly explains why SMEs engagement in the savings market has reduced. More than four in 10 (43%) firms say higher interest rates would encourage
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minimum deposit size with 24% of firms identifying it as a potential barrier to engagement.
Caution The amount of money SMEs are keeping in accounts paying little or no interest is indicative of the cautious nature of many firms in the current economic and political climate. While, of course, it is prudent for firms to
keep some cash within easy reach to cover the daily costs of running a business, having too much money that is earning next to no interest – can have an adverse impact on finances. Small and medium-sized businesses are
the backbone of UK plc and the savings industry needs to provide greater incentives to those firms to maximise the interest they receive on their cash reserves. Quicker access to better paying accounts,
more innovative and flexible products and improved mobile and online services are just some of the ways providers can help tackle inertia in the market and encourage greater engagement from SMEs. CCR
March 2020
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