Choosing the right savings account for your business

Author: Anna Bowes | Co-Founder –  Savings Champion

Choosing the right type of savings account for your business isn’t always straightforward – but this doesn’t mean you should leave your funds languishing in a low-paying savings account or even in your business current account.

A review of your business’s cash accounts could significantly increase the interest that you could earn.

Here are some top tips to help your business boost the interest earned on its spare cash:

Earn more interest by shopping around.
It may sound obvious, but it can be tricky to find information about the best business savings accounts, and the time taken to scour the market can sometimes even cost more than the extra interest earned.

Businesses often have better things to do than worry about the interest they can earn on the cash they hold. However, if you could earn more than you are currently getting from your bank, this could be used to pay bonuses or even the salary of a member of staff, so is a great incentive to switch to a better paying account, even if it’s a provider you may not have heard of before.

Earn more interest by taking a balanced approach.
Of course, there’s nothing to say that you need to stick to one type of account. Careful analysis of your business’s cash reserves, alongside your future plans and your business’s cash flow forecast, could mean earning even more.

Dividing up your reserves between short and longer-term goals and plans would enable you to take advantage of the higher returns from notice accounts and fixed rate accounts, whilst also ensuring that enough money is kept liquid and accessible in easy access accounts.

Unfortunately not all savings providers offer business savings accounts, and even less offer a variety of types of business accounts. And while the Financial Services Compensation Scheme (FSCS) limit is important, depending on the amount of money your business has to deposit, it’s not always possible to keep all the money protected. So, finding a provider that does allow you to deposit more than the FSCS limit could also be important.

For larger companies, this would have been the norm until 2015, as companies that were deemed to be ‘large’ had no FSCS protection at all! It was only at the same time the limit was reduced to £75,000 in 2015 (it has since been reinstated to £85,000) that the FSCS coverage was extended to all companies. As this was not widely published, this could be comforting news to some companies who thought that none of their money was protected.

Earn more interest by checking the small print carefully and diarising bonus end dates and maturity dates.
Some business accounts will come with strings attached, such as a bonus rate which drops away after a certain period.

And of course, when fixed term bonds come to an end, the money may be rolled over into another account of the same term – but the rate on offer may no longer be competitive. Or the proceeds could be moved into a low interest paying access account.

While it can be beneficial to have the initial rate bolstered by a bonus or to lock into a good rate using a fixed term bond, you will need to diarise when it ends so you remember to review your account at that time and switch to a better paying account, as appropriate.

Earn more interest by regularly monitoring your accounts.
How will you know if your bank or building society drops your interest rate?

They should let you know, but the quality, standard and timing of the information that customers receive will vary from provider to provider – as well as the way the information is communicated.

To be sure, you will need to check your rate regularly, by logging into your account or giving your provider a call.

What about cash in my SSAS?
A SSAS is a Small Self-Administered Scheme, which is a type of workplace pension scheme that an employer can self-manage for less than 12 members, and the savings accounts that accept SIPP and SSAS funds are often business savings accounts.

A SSAS is usually set up by directors and senior staff to allow them the flexibility to choose how the pension fund is invested.  And, while in recent years many investors have developed a sense of security with relatively consistent and positive investment returns, last year brought us back to reality that investments can fall as well as rise. This, coupled with rising interest rates means that cash is becoming a more and more important part of pension planning.

But if you thought that finding a business savings account is tricky, finding an account that accepts SASS money is even harder. This is because, not only must you find a savings provider that will be accepted by the SSAS pension scheme administrator, but you must also hope that the account in question is paying a level of return high enough to make the trouble of opening the account worthwhile. In that way, a bank or building society that deals with both Business funds and SSAS money, whilst offering a competitive rate of return, can make your life a lot easier, allowing you to kill two birds with one stone. As a result, when you can find a savings provider that has developed strong relationships with these pension scheme administrators, and the rates on offer are competitive, this makes the process of making cash in a pension work harder, all that much easier.

In Summary
Business savings are one of the most overlooked cash savings areas, as business owners often lack the time and/or the inclination to find and place their money into competitive paying accounts. None-the-less, business accounts have seen rates rising almost as rapidly as personal accounts over the last year, and now may be a great time to finally dust off your accounts book, do some research and make your business funds work harder for your business, as well as your SSAS scheme.

To find out more about our Business Accounts for limited companies, sole traders, clubs, societies, trusts, credit unions and pension funds, please visit our website’s dedicated Business Savings Account section.

Although this email and article may contain helpful information and tips, these are not personal advice. You may wish to seek advice from a financial advisor if you are unsure what’s best for your own personal circumstances.

You can find out more about Savings Champion here