August 2022

Which type of business savings account is best for you and your company?

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Deciding where to hold money in your business is an important decision. If you have spare cash then there’s a good chance it’s sitting in your current account, potentially earning next to no interest.

Making sound choices with your cash is especially important during this period of high inflation.

According to the Office for National Statistics (ONS), inflation reached 10.1% in the 12 months to July 2022, the first time it has hit double digits since 1982.

With costs rising, holding your money in the most effective account possible is a high priority.

So, read on to find out about more about the range of options available to you, and which might be right for you and your business in the current climate.

Easy access accounts

The most common option for holding cash in your business is an easy access account.

As the name suggests, there are no restrictions for when you can save and withdraw money from an easy access account, and there are typically no minimum deposit limits.

This type of option can be useful if you regularly need to deposit and withdraw from the account. However, the drawback to this flexibility is the low rate of interest you’ll receive.

For example, as of 12 August 2022, the Barclays Business Premium Account pays just 0.15% on balances up to £1 million. That’s just £15 annual interest for every £10,000 you save.

As of 12 August 2022, financial analysts Moneyfacts report that the best rate on a business easy access savings account was just 1.5%.

  • Had you invested £10,000 at this rate a year ago, you’d have £10,150 now.
  • But, due to high inflation, goods and services that cost £10,000 a year ago cost an average of £11,010 now.

As you can see, in this current inflationary environment, the value of your easy access savings is being eroded in real terms.

So, if you have a considerable amount of surplus cash, you may want to seek a better alternative.

Notice accounts

If you don’t need immediate access to all your cash, you could consider moving some to a notice account.

With a notice account, you have to provide notice to make a withdrawal – hence the name – in return for a better interest rate. This could be anywhere between 30 and 200 days.

As of 12 August 2022, Moneyfacts report that you can earn 1.85% interest if you’re prepared to give 95 days’ notice to make a withdrawal, or 1.9% if you are prepared to wait 200 days.

If you have capital projects or expenses that you have set aside funds for, but you don’t need the money until a few months down the line, moving some of your surplus cash to a notice account could boost your return.

However, even the best interest rates are still significantly lower than the current inflation rate, meaning your cash is still likely to lose value in real terms.

Fixed-rate accounts

If you are prepared to commit your cash for at least a year, you could consider a business fixed-rate bond.

In return for a higher rate of interest, you normally have to commit your funds for anywhere between one and five years. Generally speaking, you’ll benefit from a better interest rate if you commit your funds for a longer period.

As of 12 August 2022, Moneyfacts report that you can earn up to 2.25% in a one-year bond, or 2.9% in a three- or five-year bond if you’re prepared to commit your cash for longer.

This is a good way of boosting the returns on your money, provided you can commit the funds for the agreed period. Any withdrawals within the bond term are usually subject to significant penalties.

Spreading your money across accounts

Of course, nothing stops you from opening different types of account and holding money in all of them. Having some funds instantly accessible and some you’re prepared to tie up can be a useful way to manage surplus cash.

Another benefit of this approach is that it can help you benefit from maximum coverage under the Financial Services Compensation Scheme (FSCS).

The FSCS will protect up to £85,000 of your money if your financial provider fails.

Crucially, this figure counts for each provider you’re involved with. So, if you have more than £85,000 of surplus cash in your business, it can be sensible to spread this across providers to give it all the available protection under the scheme.

That means you might choose different providers for your easy access and notice accounts and open a bond with a third institution to give your money maximum coverage.

A final option – invest it

If you want your business to continue to thrive, it can sometimes be beneficial to reinvest your surplus cash. For example, upgrading machinery and IT equipment can help your staff to work more effectively, reducing the time needed to do jobs.

Alternatively, in the current tough economic climate, offering better salaries and perks for your staff can be a positive choice. As well as your existing team being more motivated, this approach can also reduce your company’s staff turnover rate.

A final choice might be to diversify into other securities. This can give your business multiple revenue streams while giving your surplus cash a chance to grow.

Speak to us

There are many different options for what to do with surplus cash in your business, and if you want to find the most effective way for you, seeking professional advice can add value.

Whether you’d like help choosing the right account for your business or you need any other financial advice, please do get in touch with us at Holborn Financial.

Email info@holbornfinancial.com or call 020 8946 8186 to find out more today.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.