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

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

Recovery Loan Scheme: the latest government aid package for small businesses
Small business

Recovery Loan Scheme: the latest government aid package for small businesses

The Recovery Loan Scheme will help companies weather the pandemic
16 Apr 2021
The end-of-tax-year to-do list for small businesses
Small business

The end-of-tax-year to-do list for small businesses

If you run a business, get on top of your paperwork before 2020-2021 draws to a close.
1 Apr 2021
Sunak sticks with SEISS support scheme for the self-employed
Small business

Sunak sticks with SEISS support scheme for the self-employed

The chancellor has extended the SEISS scheme to help the self-employed through pandemic-induced difficulties.
19 Mar 2021
What's behind the collapse of Greensill Capital, and why does it matter?
UK stockmarkets

What's behind the collapse of Greensill Capital, and why does it matter?

A financial company involved in opaque products that repackaged loans has gone into administration. Is there a bigger systemic risk here?
13 Mar 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Lab-grown meat: how “moo’s law” will drive innovation
Soft commodities

Lab-grown meat: how “moo’s law” will drive innovation

Jim Mellon and Anthony Chow, co-founders of Aim-listed Agronomics, explain why they believe that “cellular agriculture” will benefit from massive long…
16 Apr 2021