Business savings: Why it’s worth shopping around

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The UK is currently sweltering under a heatwave, and the sun looks set to keep shining for a few more days at least. However, the interest rate climate is uncertain, with rising inflation and the wider economic impact to be considered.

As discussed in last week’s newsflash, rates are bound to rise sometime, although the Bank of England base rate is staying at 0.25% for the time being.

What about the USA?

Rates may soon be on the move if the UK follows the US pattern.

Over the Atlantic, interest rates were held at record lows since the financial crisis. The first increase in nine years came in December 2015, then in December 2016 and again in March this year.

Base rates in America are set using the Federal Reserve funds rate (this is the amount banks and other institutions charge each other to borrow money held at the central bank).

The Daily Telegraph says: “The US Federal Reserve is expected to raise its federal funds target to between 1.00% and 1.25%, from 0.75% to 1.0%.”

Managing your savings while interest rates are low

Businesses are managing and optimising the opportunities and risks presented by Brexit and the current climate. You might have deposited money in the bank to act as a cash reserve, to save for new equipment or to fuel long-term business growth. A sensible business will make their money work as hard as possible, while keeping enough in a current account for effective cashflow.

Why leave your cash in business savings accounts that pay little or no interest when you could boost the income you receive by 10 to 12 times when you choose an account paying the highest rate?

UK businesses have £258bn in cash balances and make next to nothing on them – in some cases, businesses with cash holdings are being charged fees by their banks

A business with £2 million cash holdings could generate an additional £30,000 per year. This return could provide for a new marketing campaign or a staff member, contributing to productivity and profit.

Akoni CEO and co-founder, Felicia Meyerowitz Singh, says: “Most businesses sweat all assets, yet cash typically languishes.”

A business savings account is the best place for any surplus funds, because they usually offer higher rates than a business current account. Broadly, you can choose between two types of business savings account:

1. Fixed rate bonds

With a fixed rate bond, you choose a term from one to three years. The rates on business bonds tend to be better than variable rate accounts, and are guaranteed so you know what you’ll be getting.

Generally, the longer you’re willing to lock your funds away, the higher interest rate you’ll receive.

However, there’s no flexibility, and you won’t be able to add funds. Usually, you won’t be able to make any withdrawals before the maturity date. If you do, you’ll have to pay a significant penalty.

You could get 2.2% when you invest £500K in Secure Trust Bank for 60 months, or 2.0% over 48 months*

Check today’s fixed rates on AkoniHub >

2. Variable rate accounts

‘Variable’ means providers can change the interest rate at any time.

With an easy access business savings account, you get instant access to your funds in case of emergency. These accounts are very flexible. The minimum balance is likely to be low, and there will be few withdrawal restrictions, so you can make as many deposits and withdrawals as you wish.

Interest rates are higher with a notice account, but you will have to give notice to your provider before you can withdraw any money. Notice periods generally vary from 30 days to 120. If they allow you to access funds earlier,  there will usually be a penalty.

You could get 1.0% when you invest £500K in ICICI Bank instant access business savings account*

Check today’s variable rates on AkoniHub >

Things to look out for

It’s important to consider the small print as well as the headline rate. Here are some questions to ask:

  • Does the rate include a short-term bonus? If yes, you may need to move your savings when the rate drops
  • Is your type of company eligible? Do you meet the turnover criteria?
  • Is there a minimum investment requirement?
  • Do you need to maintain a minimum balance at all times?
  • How many penalty-free withdrawals can you make each year?
  • Are you restricted to accessing the account only in branch, by phone or by post?

Ensure you’re covered by FSCS protection

The Financial Services Compensation Scheme (FSCS) protects the first £85,000 you hold in each institution with a separate UK banking licence – but only if you’re a ‘small business’ that meets at least two of these criteria:

  • 50 employees or fewer
  • £6.5 million turnover or less
  • £3.26 million balance sheet total or less

To find out more, please see our article: Are your deposits protected?

A note about tax

Interest is paid gross, so remember to notify HMRC of any tax your business owes on its savings interest.

Follow our cash management advice by shopping around to find the best rate, and you’ll be happy to pay extra tax on the extra interest you’ve earned!

*Interest rates correct at time of writing.

Akoni helps businesses make the most of their cash. Register for free at AkoniHub.com

Are your deposits protected?

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Individuals and businesses are rightly concerned about risking their cash, especially since the 2007/8 financial crisis.

As you may remember, the problems started in the US with the sub-prime lending crisis and collapse of Lehman Brothers. This led to a run on UK’s Northern Rock that forced the government to intervene and guarantee deposits, followed by the need to step in and save HBOS and RBS (owner of NatWest).

FSCS

After NatWest was deemed ‘too big to fail’, the government launched the Financial Services Compensation Scheme (FSCS) – an independent fund designed to protect your money if the worst happens.

The FSCS applies to all organisations regulated by the Financial Conduct Authority (FCA), and covers all UK-regulated current accounts, savings accounts and cash ISAs held in banks, building societies and credit unions.

If your bank collapses, it’s likely that you’ll lose access to the cash temporarily, but you should get your money back within seven days.

As part of the Akoni service, we share advice on making the most of your cash. So here are six things you need to know about how the FSCS protects your deposits:

1. The amount of protection you get has increased from £75,000 to £85,000

The amount protected in each UK-regulated financial institution increased by £10,000 on 30 January 2017.

Chief Executive, Mark Neale, said: “Our new limit will protect about 98% of the UK public, so people can be sure their money in banks, building societies and credit unions is safe.”

2. Joint accounts get double protection

Cash in joint accounts is protected up to £170,000 – half each. But beware. If you have another account with the same institution, your individual savings totalling over £85,000 won’t be covered.

3. In some cases, up to £1m will be protected for six months

If your savings balance is temporarily high due to a life event such as selling your main home (not a second home or buy-to-let property), inheriting money, redundancy, or a payout from insurance or compensation, the FSCS protects up to £1m for up to six months if your provider fails.

This allows extra time to plan. Meanwhile, you can move the cash into an account that pays higher interest, and maximise your cash.

4. Check which institution owns your bank

Remember, the limit is not £85,000 for every account, it’s for every financial institution. So you need to know which institution ultimately owns the brand name where your account is held.

The definition of ‘institution’ depends on what licence the bank holds. For example, Halifax and Bank of Scotland are sister banks, and your money is covered up to £85,000 combined. However, RBS and NatWest are also sister banks, but their limits are separate.

See the list on the Bank of England website >

5. Check that the FSCS covers the bank where your money is deposited

Most banks that are located in the UK are also regulated in the UK, including some that are owned overseas, such as Spain’s Santander. However, there are a few EU banks that are not UK-regulated, such as use Fidor and RCI Bank. Instead, they use a ‘passport scheme’ which gives protection from their home government.

Find out more on the FSCS website >

6. Spread the risk

We recommend you deposit less than £83,000 in any one institution, which leaves room for interest to grow. We also suggest you spread your money across at least two institutions. This is because if one bank collapses, there will be a delay in releasing your funds via the FSCS, meanwhile, you will still be able to access your cash in the other.

Akoni helps businesses make the most of their cash. Register for free at AkoniHub.com

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Cashflow Tips for Your Expanding SME

As an owner of a small business for over ten years, I’ve seen my fair share of cashflow crises. It’s the one thing that all small and medium (and large) business owners experience somewhere along the line, and dread.

Here are some tips we’ve compiled to help SME business owners plan ahead, and may help avoid the cash flow crunch:

ONE: Cashflow Forecasting

The first thing to do is to predict where and when the business’s cash is coming in to cover what is going out, and make some profit on the side. Imagine if a client didn’t pay on time and plan for that. Set realistic earnings targets a year into the future, planning ahead week by week. List your SME’s income and expenditure on a spreadsheet, taking factors such as the peaks and troughs of trade, the overhead costs of running the office during the various seasons and staff leave, amongst other factors, into account.

TWO: Accounting Software

Cloud based tools allow SME’s to scale up and migrate their software as the company grows. Depending on your business profile, some of the most popular cloud-based tools out there are Xero, Freshbooks, Quickbooks and Sage, which provide solutions that are affordable and easy to use. They feature time-saving features such as automated entries, invoicing, bill payments, expense reports, financial reports and reconciliations – all key to keeping your cashflow fluid.

THREE: Strong Business Process

By definition, a business process is an activity or set of activities that will accomplish a specific organizational goal. Ensuring that your business has a strong business process, and is focussed on growth and  financial success makes the company more streamlined and efficient – which will translate directly to  your cashflow, as you will be getting the maximum out of your company to earn the best turnover for the least amount of input possible.

Ensure fiscal control by segregating duties in the financial department –  i.e. separate people working on the bank reconciliations and invoice billing.  If the SME is small, the business owner should always check the bank reconciliation, making sure they keep up to date with company finances. Enhance the business process by, for example, integrating CRM programmes that facilitate and streamline one’s marketing and client relations strategy, or by using cloud based invoicing which link your marketing and sales teams.

FOUR: Optimal Payment Terms

Always remember that your clients have different business priorities to your company’s. The longer they can delay paying your company, the better for their business. Negotiate terms with your clients that suit both sides – and bargain hard. On long-term projects, explore progress payments, never accept back-to-back payments (you get paid when the client gets paid) and make sure you are getting the most agreeable terms possible from your suppliers. Negotiate the best deal woith suppliers, but keep them on your side by settling their bills within their terms too. Business is all about relationships, and building up a loyal supply base is one of the secrets to success.

Offering clients incentive to pay early is a good way to ensure bills are settled in a timely way – small discounts or free delivery for early payment goes a long way to fostering good client relations, and getting the payments in quicker.

Make sure that you are using the most cost effective manner of payment – bank charges on card transactions can be steep, online payments may take days to clear – ultimately you need something to investigate the most effective payment method for your business needs.  You can speak to your bank relating to the most efficient services provided and the costs per transaction.

coffee-cup-mug-deskFIVE: Funding Your SME

When your business needs funding, the first place to go is the high street banks -still the largest funding source for SME’s. There are also a number of challenger banks out there, offering great deals. Should you need alternative funding sources, then consider  financing though companies like TradeRiver or FundingCircle (who provide a thirty second eligibility check, with no impact on your credit rating, and has a £60million facility via the government-back British Business Bank) or BoostCapital (online application and an answer within 24 hours, with access to the funds within two days).

SIX: Deliver the Goods

Make sure the customer has no excuses not to pay. Deliver a good quality product, on time and within the brief. Realise that without customers you don’t have a reason to exist. Customer complaints should be taken seriously as these will alert you to problems that could indicate a serious leak in your cash flow. Disputes hold up payments, which leads to cash flow problems.

Listen to your clients – if they have suggestions to improve your User Journey, or your product, implement them. You should see the difference in your bottom line. Ask your happy customers to write company review on TrustPilot or Which.co.uk or s similar website. Good reviews are what drive sales. Sales translate into cash. Regular cash coming in helps your cash flow.

SEVEN: Make Your Cash Work

SME business savings are often a blindspot when it comes to the banks, and now there are an increasing number of alternative savings accounts out there that are tailored towards the SME market. If you have your business’s cash savings stored in a savings account earning next to nothing, we at StongJones suggest you shop around for a better deal. There are many banks such as Investec, ICIC, SBI as well as the challenger banks which are offering competitive rates. There is a growing awareness amongst financial institutions of the need to cater for SME’s, recognising that they are the future of business in the UK.

Finally…

Being an SME owner comes with many challenges. Well known businessman and entrepreneur Sir David Tang once said that the three most dreaded words in the English language were “Negative Cash Flow “. However, if one can get the basics right, and gets a good operating system in place, then your business has a far better chance of surviving the first few crucial years, and will be well prepared for future expansion.

Akoni helps businesses make the most of their cash. Register for free at AkoniHub.com

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Savings Hit as Interest Rates Halve

There have been significant challenges to businesses over the past few years – austerity, changes in regulation , minimum wage and more recently the EU referendum – all within a climate of global uncertainties as the major world economies are in recovery. Most of these factors have some impact on almost all businesses within whom we interact.

The Bank of England has now cut rates from 0.50% to 0.25% – a move that has previously been expected, and priced accordingly by the markets since the results of the Brexit were announced.  Head of BoE, Mark Carney, has also ruled out negative interest rates, and has provided business savers with some certainty going forward.

Business Savings have been worst affected, with interest rates for U.K. Savings accounts from High Street banks being in the low and in some cases, nil percentages.  Fortunately there are still many banks offering reasonable returns in the current climate and we encourage SMEs to review availability, particularly bearing in mind government protection up to £75,000 per banking institution. Currently, the highest Easy Access business rates are 1.10% to 1.35% for business interest rates.

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Shop Around for the Best Rates Available

Last week, the Royal Bank of Scotland wrote to 1.3 business owners, saying that it may be forced to charge on credit balances, should the Bank of England take on negative base interest rates – mentioning they may charge businesses for holding deposits. This announcement was currently limited to only two High Street banks, concerned with their own margin pressures.

There is still ample opportunity for business to work the unutilised asset – cash.   At the same time as the above announcement, there are a large range of banks offering relatively significant returns from overnight to 1 week 1 month and 1 year plus terms, so it is worth shopping around for the best returns.

“For now, it’s unlikely a cut in the base rate to 0.25 per cent will result in charges. But this is certainly something to be wary of further down the line if you are a small business owner with cash in the bank. It may be a good reason to shop around for a different bank, one that commits not to impose charges,“ writes Ben Chu, Economics Editor at the Independent.

We at Strongjones urge all businesses spend time reviewing market alternatives for their cash surplus. This would be as simple as a marketplace review – taking a few minutes, allowing you to continue your primary banking relationship without any change. This combined with straightforward cashflow management allows the business to extract additional income for minimal effort.

We provide SMEs solution to manage cash and maximize returns and are happy to discuss our solutions further and we aim to provide solutions that every business should be seeing from their banks in some form. Our startup is presently taking on Beta Group customers – contact us to learn more.

Akoni helps businesses make the most of their cash. Register for free at AkoniHub.com

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