Small business owners are losing out on deposit interest rates for fear of jeopardising relationships with their existing bank, according to new research from Investec Private Bank.

80,000 small and medium sized UK businesses (35 per cent) say they are reluctant to move their company’s cash deposits to another bank as they do not want to risk their ability to borrow or to lose existing preferential rates they receive on other products from their existing bank.

This is despite more than half (53 per cent) of them saying that they realise they could be earning a higher rate of interest for their business deposits with another bank or building society.

Investec says the research indicates that smaller businesses could be the big losers in the recession as some banks have either reduced lending or have raised the rate of interest on loans at the same time as failing to pay competitive rates of interest on savings deposits. This is particularly worrying as over 500,000 SME owners (37 per cent) do not know the interest rate they are currently paying on bank loans and overdrafts and 65 per cent of owners (over 800,000 companies with a business savings account do not know the returns they are receiving on these deposits.

Almost a third (32 per cent) of SME owners (125,000 companies) who know the rate of interest they are paying on business loans have seen the rate of interest charged on these bank loans increase over the last 12 months. This is despite the Bank of England reducing the bate rate from three per cent in November 2008 to 0.5 per cent now. Of these, more than one in 10 owners said that their bank had increased the rate on their company loan by more than one per cent in the past 12 months.

Jack Jones of Investec Private Bank said: “Smaller businesses are being squeezed at both ends by banks at a time when they are most needed. On the one hand they are struggling to borrow additional monies at affordable rates; while on the other, they are receiving often derisory rates of return on any savings. Our research shows that many owners of smaller businesses are worried that they will be penalised if they move their savings to more competitive accounts.

“Businesses should also be able to move their deposits to accounts that pay a consistently competitive rate of return without jeopardising rates and terms they receive on other products such as loans and mortgages.”

Reasons that smaller business owners have not moved their savings to a bank / building society paying a higher rate of interest

• Not worth the administrative headache
• Have not yet considered moving, but may do so
• Do not want to jeopardise ability to borrow or increase borrowings
• Do not want jeopardise preferential rate paid on existing loans
• Loyalty to existing bank
• Have a good relationship with existing bank
• Do not want to adversely affect rate on existing business overdraft
• Tied in to a fixed rate for a set period
• Do not want to adversely affect rate on existing company mortgage
• Other
• Don’t know

Source: Continental Research

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