Should your business switch to a new current account?

The current-account market has plenty to offer small businesses. Don't be afraid to switch, says David Prosser.

934_MW_P30_Small-Bus

Metro Bank has won plaudits for its business banking

2010 AFP

The current-account market has plenty to offer small businesses.

There has never been a better time to switch business current-account provider. Competition between banks targeting small and medium-sized enterprises (SMEs) has never been this intense and not just among the digitalnew entrants we hear somuch about.

Like most individuals, SMEs have often been deterred from switching because of the perceived hassle, or because they assumed other products aren't sufficiently different or compelling. As far as the first problem is concerned, however, businesses with an annual turnover of up to £6.5m and fewer than 50 employees are now covered by the Current Account Switching Service. This scheme counts all the major British banks among its members and guarantees a trouble-free current-account switch completed within seven working days, with compensation if something does go wrong.

On the second count, there are also now some really compelling products on the market. For SMEs looking for a high-tech service, digital players offer an innovative approach. New entrants such as Tide and Cashplus make it much quicker to open new accounts than traditional banks and offer a superior range of mobile and web-based services. Monzo, one of the UK's best-known digital banking brands, is starting to develop a business account.

However, other types of challengers offer alternatives. Specialist SME-orientated banks such as Aldermore have targeted the SME sector with products designed specifically for its needs, rather than trying to tweak their consumer accounts. Metro Bank and Shawbrook Bank new brands serving both sides of the market have won plaudits for their business products.

Don't rule out older names

This range of choice underlines an argument that SMEs haven't always appreciated: there's more to choosing a bank than simply comparing headline interest rates. In this context, the independent Business Banking Insight is a good place to start for SMEs contemplating changing account. It ranks small-business banking services according to the ratings given to them by other business customers, based on a broad range of criteria.

SMEs' costs go up

The FSB's research focused on taxes, business rates, employee obligations and other government levies, recording a 15% increase in annual costs for the typical small business over thepast eight years. But in April new rules on pension contributions, along with a higher minimum wage, will add to the burden.

On pensions, the minimum contribution rates are increasing in the auto-enrolment system, which requires all employers to set up and pay into a pension scheme for their staff. From6 April, employers will have to pay 3% of salary into the pension funds of staff, up from 2% now.

As for the minimum wage, the minimum hourly rate for staff over the age of 25 increases to £8.21 on 6 April, up from £7.83 today. The increase, at just under 5%, is more than twice the current rate of inflation.

Many businesses will support the principle of more generous pay and pensions for employees, but the ever-rising cost burden will put them under considerable and in some cases, intolerable strain.

Recommended

How to help your business cope with rising energy costs
Small business

How to help your business cope with rising energy costs

With rising energy costs putting cost pressures on the country's businesses, the best way to keep the lights on is to make sure you’re turning them of…
18 Jan 2022
How to fight cyber-crime in your small business
Small business

How to fight cyber-crime in your small business

There are five key areas for owners of small businesses to focus on when fending off digital attacks.
30 Dec 2021
How to free up extra Christmas cash for your business
Small business

How to free up extra Christmas cash for your business

Too few small businesses keep unnecessary costs to an absolute minimum. Here are six ideas that might pay for a Christmas bonus.
14 Dec 2021
How your business can win the race to recruit new staff
Small business

How your business can win the race to recruit new staff

Smaller companies can’t offer huge cash incentives for new staff, but they can still compete effectively for labour. David Prosser explains how.
1 Dec 2021

Most Popular

Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Three innovative Asian stocks to buy now
Share tips

Three innovative Asian stocks to buy now

Professional investor Fay Ren of the Cerno Pacific Fund highlights three of her favourite Asian stocks to buy now
24 Jan 2022
Temple Bar’s Ian Lance and Nick Purves: the essence of value investing
Investment strategy

Temple Bar’s Ian Lance and Nick Purves: the essence of value investing

Ian Lance and Nick Purves of the Temple Bar investment trust explain the essence of “value investing” – buying something for less than its intrinsic v…
14 Jan 2022