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Monthly Savings Tracker (April 2024) - the Great British Savings Squeeze

15th Apr 2024
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Allica Bank is Britain’s award-winning business bank focused exclusively on supporting established...
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Allica Bank, Richard Davies
Allica Bank

Publishing the first of its Monthly Savings Tracker reports, Allica Bank has revealed that SMEs are earning 2.74% less on their savings by keeping them with high street banks.

With the average SME savings balance sitting at £75,000, it means the typical British business is missing out on over £2,000 in interest a year.

We launched The Great British Savings Squeeze petition alongside a coalition of partners, including the Federation of Small Business and the Institute of Directors, to try and fix the savings market and get small businesses the money they deserve. The campaign is calling for the government and regulators to:

  • End the SME savings penalty
  • Notify SMEs of better rates
  • Increase protections for SME deposits

Allica Bank’s Monthly Savings Tracker will be published monthly to monitor how the big six banks are changing the rates they’re offering to SMEs over time. We will then compare this to how the Bank of England Base Rate has changed and the best rates available on the market from challenger banks.

A growing divergence across the market

April 2024’s report has painted a clear picture: the gap between the big six banks and challengers is the largest it’s been in at least one year.

The standout points from the report include:

  • Instant access savings accounts from big banks, on average, offer rates of 1.59% AER.
  • If businesses shopped around for the best rate, they could get up to 4.33% AER.
  • The average rate available from the big banks hasn’t changed since September 2023.
  • The average SME is missing out on a possible £2,058 in interest.

The savings penalty, per business and as a whole

If an SME held £75,000 in an instant access account with one of the big six, it would earn £1,190 by the end of the year.

By comparison, if an SME held those same funds in the leading account from the challenger market, it would earn £3,248.

Considering SMEs employ 60% of the country’s workforce and generate over half of its GDP, that’s a lot of missing potential!

As a whole, these businesses face £7.5 billion every year in lost interest. According to Allica’s original Great British Savings Squeeze report in late 2023, more than half of all SMEs’ cash is earning nothing in interest. The remaining amount was in accounts with rates 2.1% lower than what was offered to large corporate businesses.

The gap widens

The gap between big banks and challengers only seems to be growing, suggesting that the longer an SME leaves their money in a high street bank the more they’ll feel the bite. The gap between the big banks and challengers grew 0.32% since February (from 2.42% to 2.74%). While over the past six months the size of the gap has increased by almost a whole percentage point – in October 2023 the difference between the big banks and challengers stood at 1.76%.                                           

Monthly savings tracker-graph
Allica Bank

In fact, the average rate offered on instant access savings by the big six hasn’t increased since September 2023. The best rate available from challenger banks on the other hand has only gone up.

This difference in pace has widened the gap to a new record. In March, the savings penalty for an SME with the average savings deposit of £75,000 topped £2,000 for the first time, with the figure reaching £2,058.

Cashflow is key in the day-to-day running of your client’s business. With the change in interest rates, it’s become important to review the amount they could earn on their surplus cash. This might be through a dedicated fixed-term savings account or a more flexible instant-access savings pot, associated with a current account. Enabling your clients to access opportunities to earn more is a practical way of delivering value to them and your relationship.

Holding back growth

The savings penalty becomes especially stark when considering those businesses with higher sums of cash on the balance sheet. For example, a firm holding £1 million in savings could be missing out on £24,700 in interest! (£43,300 vs. £15,900.)

That’s an astonishing figure, which could pay for an extra member of staff, a major piece of equipment, or even be put towards a deposit on a property.

The view from Allica

On publication of the report, Allica Bank’s CEO, Richard Davies, said:

“The country’s hard-working SMEs are being severely short-changed by a broken savings market.

“It makes no sense to see such a big gap between the rates offered by challenger banks and the large high street banks – and to see that gap jump by 13% in the last month alone shows how out of touch many of the banks are with SMEs and the pressures they face from the cost of business crisis.

“It’s high time we saw action taken to make the big banks pass on more savings interest to their SME customers. As it stands, SMEs are losing thousands of pounds leaving their savings languishing in low interest accounts with the big banks.”

What to do for your clients

Staying up to date with the best products on the market could certainly add value to your client relationships. This extra cash could be invested back into their business, or lead to them seeking further input from you on their strategic planning or preparing financial forecasts.

If you want to stay on top of more news from Allica Bank and the Great British Savings Squeeze, you can sign up to Allica’s Market Briefing.

And if you want to throw your support behind the Great British Savings Squeeze campaign, you can add your signature to the petition at savingssqueeze.com.