Partner Article

Businesses missing out on corporate deposits

Businesses risk missing out on acceptable interest rates by failing to implement a proper financial strategy, according to experts at Pearson Jones plc.

Specialists at the wealth management firm are concerned that millions of pounds are sat in UK business high street bank accounts at negligible interest rates because businesses are unable to find accounts paying interest rates equivalent to those available for personal customers.

Harry O’Connor,a wealth management adviser at Pearson Jones said: “Some profitable companies accumulate cash because it is difficult to pay surplus profits to shareholders or directors without incurring substantial tax liabilities.

“Other successful businesses are accumulating cash because they are rightly being prudent about the future and keeping cash easily accessible in case trading becomes less profitable.”

Most businesses are not eligible to benefit from the UK’s Financial Services Compensation Scheme, meaning that they are unable to access up to £85,000 compensation in the event of a bank failure.

Some businesses choose to retail cash in high street banks because they believe that they are too big for the Government to allow to fail. Many banks are aware of this and fail to offer good rates to business depositors.

Harry continued; “Their interest rates tend to be very low. At as June 8 2012, HSBC pays just 0.07 per cent on its Business Money Manager Instant Access account on balances of more
than £1m.

“If investors tie up funds for three years, this rate increases to 1.26 per cent. Some banks with lesser financial ratings offer better rates but none reach levels available to private customers.

“Businesses should consider using alternative savings accounts which are available only through certain investment wrappers. Our own business and corporate clients can invest in wrappers which allow savings to be placed in accounts paying interest rates which, as at June 8 2012, can be up to 4% for a five-year deposit, or 2.45% for instant-access funds.

This approach would be better for the long term profitability of the companies involved, the remuneration of company directors, partners and business owners, and provide greater security to the financial sector and be better for the economy.

This was posted in Bdaily's Members' News section by Ruth Mitchell .