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Major banks are facing increasing scrutiny over their failure to offer competitive interest rates on the savings of small businesses, prompting calls for urgent action to address the issue and prevent SMEs from losing out on over £7.5 billion annually.
Criticism has been directed at banks for offering preferential savings rates to large corporate clients while neglecting smaller businesses. Allica Bank, a digital lender specialising in small business finance, has highlighted this “savings penalty,” coupled with the fact that up to £150 billion of SME deposits earn no interest in zero-interest current accounts, resulting in substantial annual losses for businesses.
Richard Davies, CEO of Allica, has appealed to the Commons Treasury committee to spearhead reform efforts as part of its inquiry into SME finance. This initiative has garnered support from prominent business organisations such as the Institute of Directors and the Federation of Small Businesses.
The banking industry has faced increasing criticism regarding savings rates, particularly as interest rates have risen from record lows since late 2021. Despite this, commercial lenders have been slow to pass on higher rates to depositors, allowing them to widen profit margins and enhance profits.
Calls for improvement in savings rates have intensified, with government bodies like the Treasury committee and the Financial Conduct Authority urging banks to ensure fairness for depositors. However, attention has predominantly focused on retail customers rather than SMEs.
Allica has been vocal about the disparity in treatment of SME savings since October and is now amplifying its call for reform. The bank advocates for an end to the savings penalty and proposes mandatory notifications to SME customers when more attractive rates become available in the market.
These proposed measures are likely to benefit Allica, known for offering superior rates compared to larger competitors. The Treasury committee’s ongoing inquiry into SME finance is expected to generate recommendations on regulatory and policy reforms.
Davies emphasised, “The discrepancy in interest rates offered to companies of different sizes exploits both the market’s lack of transparency and the limited time many small business owners have to manage their finances effectively.”
A spokesperson for UK Finance, the banking industry’s trade body, stressed the competitiveness of the business savings market and advised SMEs to explore various products, including comparison sites, to find the best savings account for their needs.
