UK businesses holding £176bn in zero-interest accounts amid rising rates

Andrew Tricker, 13 November 2023

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UK businesses are still holding £176 billion in bank accounts that offer zero interest despite rising interest rates and high inflation eating away at the value of their cash. This figure represents an 80% increase from five years ago when only £98.9 billion was held in such accounts.

For a decade and a half, many businesses became accustomed to interest rates that were effectively zero. During this time, companies, especially those without a treasury department, had little incentive to search for higher rates on business bank accounts. Those days are now over.

What’s changed now?

Over recent times, the Bank of England's base rate has undergone a dramatic transformation. It has repeatedly increased the base rate from 0.1% in the last quarter of 2021 to 5.25% today, its highest level since the 2008 financial crisis. Consequently, many banks are presenting businesses with enticing interest rates for their accounts. As an example, Shawbrook now provides an attractive 4.9% interest on business savings.

Why does it matter?

Businesses are being urged to consider moving their money into interest-earning accounts as soon as possible to benefit from the opportunity to earn passive income.

It’s crucial for businesses to recognise that the value of money being held in a zero-interest account is being eroded at an alarming rate. With inflation at its current level, they are losing over 6p in value from every pound over a single year. By moving their deposits into business accounts that offer interest, some of this loss can at least be mitigated.

With inflation (CPI) still standing at 6.7%, the real value of savings kept in zero and low interest accounts is rapidly falling. So long as inflation and interest rates remain high, businesses are losing out significantly by keeping large deposits in zero-interest accounts and should actively start seeking more financially viable options.

How can we help?

Whilst cash accounts never really beat inflation, interest rates are now so high that it is essential to shop around for a better deal on a business bank account to at least keep some pace with inflation. If you would like some support on this matter, please get in touch with our Director, Andrew Tricker (andrewtricker@lfwm.co.uk) or Chartered Financial Planner, Gorkem Barron (gorkembarrron@lfwm.co.uk).