'Spooked’ small businesses holding on to cash in case of economic shocks | Applied

‘Spooked’ small businesses holding on to cash in case of economic shocks

The average small firm is keeping £230,000 in a current account, missing out on the interest payments they could earn by saving the money.

Britain’s small businesses are missing out on thousands of pounds of interest payments by refusing to move huge cash piles from current accounts to savings accounts.

Challenger bank Hampshire Trust Bank analysed the accounts of 500 small-to-medium-sized enterprises (SMEs) and found that the average small firm has an account balance of £230,000, as businesses hold on to capital in case of economic shocks.

Firms with fewer than 10 employees keep an average of £44,000 in their current accounts, while companies with between 100 and 240 staff hold more than £420,000.

The ratio of current account balances to savings balances stands at £1 to £1.17.

The possibility of Greece’s exit from the euro, the upcoming European referendum and a slowdown in the global economy have spooked business owners, who are reluctant to tie up their cash in savings products.

Just a quarter of the small business owners surveyed said they felt confident enough to put cash into a savings product for a year, with 56pc citing the need for greater cash buffers and 26pc claiming that the volatility of the economy was a cause for concern. This suggests small business owners are missing out on significant interest payments.

Hampshire Trust Bank claimed that using one of its savings plans, a small business that left £130,000 in its current account and moved £100,000 into savings would be £7,300 better off at the end of five years.

“For cash-rich businesses there is a huge opportunity to maximise their money and make more out of every £1 they are earning,” said Stuart Hulme, head of savings at Hampshire Trust Bank.