UK incumbent banks continue to fail SME customers according to Allica Bank. The challenger bank says that the high street banks are taking advantage of the lack of transparency in the business savings market. The end result is that SME customers are getting a raw deal.
Specifically, it estimates that SMEs banking with one of the UK’s ‘big six’ banks are losing out on £2,256 of additional savings interest on average every year.
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Earlier this year, Allica Bank said that the vast majority of UK SMEs see little or no benefit to switching their primary bank without an incentive. Moreover, it highlighted that the incumbent banks do not offer any SME-specific services which would make switching worthwhile. That has resulted in pitifully low rates of SME account switching. Indeed, Allica referenced Current Account Switch Service data to reveal that less than 1% of SMEs change their bank provider in any given year over the past decade.
Allica Bank independent savings rate tracker
Now, Allica is highlighting the excessively low rates of savings interest on offer to SMEs from the incumbent, high street banks.
Allica Bank’s independent tracker monitors interest rates offered to SMEs. It reveals that big British banks are still offering an average rate of just 1.39% to small business on their savings.
In comparison, challenger banks are offering rates of up to 4.40% on the same cash. This means that the average SME with £75,000 of savings, banking with one of the big banks is missing out on £2,256 a year in extra interest.
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By GlobalDataFor those more established businesses with £1m in the bank, this missing interest adds up to more than £30,080 annually. And SMEs are being hit with a triple whammy as high street banks exploit the lack of transparency in the market.
This is because SMEs are not only being offered poor savings rates compared to challenger bank offerings, but also worse savings rates than bigger firms who bank with the very same providers. This is in addition to many businesses simply keeping their cash in a current account earning no interest at all, likely because many business owners don’t see the poor rates on offer from the big banks as worth the hassle, or because they’re not aware of better rates that are available.
SME sector missing out on £8.6bn per year in savings interest
Allica says that sector wide, the scale of the issue result in lost interest of around £8.6bn a year in the UK. The annual figure has risen 15% from £7.5bn in September 2023. The increase results from the volume of savings growing, and rising interest rates.
It says the issue will not change any time soon, notwithstanding the cut in UK interest rates this week.
In response. Allica calls for a shake-up of the business savings market. In particular, it wants to highlight its claim that the major banks do not have the best interests of SMEs at heart. It calls on the government and regulators to force the incumbent banks to notify its SME customers of the leading rates in the market and where they can be found.
Call to enhance transparency, encourage competition
This will increase transparency in the market, encourage competition, and help small businesses to make the most out of their hard-earned savings.
Richard Davies, CEO of Allica Bank, said: “Our data has shown a significant and continued gap between the rates SMEs are offered by challenger banks and their larger, incumbent competitors. For more established SMEs especially, who will have larger amounts of cash on the balance sheet, this difference can have a massive impact. In today’s high-cost environment, this could be the difference between adding an extra member of staff, or investing in new equipment. As the UK economy stabilises after years of uncertainty, there’s little excuse I can see for this continued poor treatment of SMEs and their savings from our biggest high street banking names. And with the BoE lowering base rates yesterday, we’ll be keeping a close eye to see if the disparity improves.
“We want to see SMEs get the cash they are owed and for business banking to change for the better.”
