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

Why switching your business account can get you a better deal
Small business

Why switching your business account can get you a better deal

Two-thirds of firms have not switched business accounts in the last six years but shopping around for a better deal could pay off now that there is mo…
11 Aug 2022
Will the Recovery Loan Scheme rescue struggling small businesses?
Small business

Will the Recovery Loan Scheme rescue struggling small businesses?

The government is going ahead with a two-year expansion of the Recovery Loan Scheme, which it hopes will help firms still getting back on their feet a…
28 Jul 2022
How to avoid a wage spiral in your business
Small business

How to avoid a wage spiral in your business

Demands for higher pay are spreading. How should small business owners react?
20 Jul 2022
Beware of scams on your business’s Facebook account
Small business

Beware of scams on your business’s Facebook account

Fraudsters could hack into your business’s Facebook account and use your money to advertise their products online.
6 Jul 2022

Most Popular

Don’t listen to the doom-mongers – the future is bright
Economy

Don’t listen to the doom-mongers – the future is bright

With volatile markets, raging inflation and industrial unrest, it may feel like things are bad and likely to get worse. But the end of the world is no…
15 Aug 2022
Investors should get ready for a political revolution
UK Economy

Investors should get ready for a political revolution

Liz Truss will beat Rishi Sunak, cut taxes, and then shake up the Bank of England, says Helen Thomas
15 Aug 2022
How solar panels could lower your energy bill
Energy

How solar panels could lower your energy bill

Solar-panel installation firms are reporting a four-fold increase in orders this year compared with 2021. Ruth Jackson-Kirby explains how solar can he…
14 Aug 2022