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Business savings accounts – what are the benefits for small firms?

As a new study shows that less that one-third of businesses have a savings account, we look at the benefits of setting up a separate deposit account for your surplus funds, and take a look at the best rates available to small firms.

Business Savings Account
New research published by Aldermore this week found thatjust 31% of UK businesses have a savings account. The percentage varies across industry sectors, regions, and between business types, but shows that most business owners either don’t have the time, or don’t believe there are significant benefits to having a separate deposit account.

According to the study, sole traders are the least likely to have a separate account, although this may be due to the fact that sole traderships have no legal obligation to have a dedicated business bank account at all, whereas limited companies do.

Why bother with a business savings account?

So, what are the benefits of opening a separate savings deposit account, when interest rates remain so low?

From our experience at Company Bug, the two main benefits are; firstly, it is always wise to put away any funds you’ll need to pay your business taxes – after all, you don’t need to pay your Corporation Tax bill until 9 months after your year-end if you’re a limited company.

Secondly, if you deposit a certain amount of your profits into a separate account, you’ll build up a contingency fund in case your business experiences a downturn. The biggest cause of business failure is firms’ running out of cash, so regular savings can mitigate the risks of this happening to your business.

These reasons were backed up by the results of the Aldermore study. 40% of businesses who do have savings accounts put money aside for contingency reasons, 35% put aside money to pay their taxes, 34% do so for cash reasons, and 28% deposit funds to earn a higher rate of interest.

According to the research, 7% of businesses with a savings account have nothing put away at all, just over 20% have up to £5,000, and 13% have managed to put aside between £50,000 and £100,000.

What to look out for when choosing a savings account

The YouGov study found that an incredible 91% of businesses use the same bank for both their current and savings account. But, even if you’re happy with the way your current account is managed, and any charges you have to pay, this is not necessarily a good reason why you shouldn’t look at alternative options for your savings account.

Here are some things to consider when looking for a savings deposit account.

1) What rates of interest are payable on your deposits?
2) Look at the different types of savings account. The longer you leave the money in there, the higher the rates of interest (term deposit accounts). You may prefer instant access, which offers lower rates of interest, but maximum flexibility.
3) Don’t be fooled by initial ‘bonus’ rates. Find out what the long-term rates are.
4) Find out if you have to reach a minimum balance before qualifying for a certain rate of interest.

How much interest can you earn?

To find out the best rates currently available to business savers (November 2014), we consulted two of the most well-known comparison sites, Monefacts and Money Supermarket.

According to the comparison tables, the highest rate of interest for an instant savings account (with no notice period) is 1.50%, with State Bank of India, but you need to deposit £10,000 to qualify. Aldermore are not far behind with 1.10% interest, and a minimum deposit of £1,000.

For term accounts, you can earn 1.81 AER with SecureTrust bank, if you’re prepared to wait 120 days and invest a minimum of £1,000. Aldermore offers a 12 and 6-month savings account at 1.75% and 1.5% respectively, and Nationwide offers 12 and 6-month savings accounts at 1.40% and 1.10%

So, although interest rates remain at historic lows, if you shop around, you can still find a reasonable home for your surplus company funds, and as we’ve discussed, there are several other good reasons why you may benefit from setting aside some of your trading profits.

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