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.

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.

Advertisement - Article continues below

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.

Advertisement - Article continues below

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.



Small business

Small business: how to chase late-paying customers

Many small business have trouble getting their customers to pay up on time. Here's what you can do about it.
23 Jan 2020
Small business

HMRC to claw back unneeded aid from businesses

Businesses that claimed money they didn’t need face trouble if they are found to have breached the schemes' terms.
19 Jun 2020
Small business

State support for small businesses on the slide

Government aid for small firms is winding down. Make plans now.
6 Jun 2020
Small business

An update for the business-rate support scheme

The government has added £600m to plug the gap in its small business rates relief scheme for businesses in shared-office buildings.
5 Jun 2020

Most Popular


The end of the bond bull market and the return of inflation

Central bank stimulus, surging post-lockdown demand and the end of the 40-year bond bull market. It all points to inflation, says John Stepek. Here’s …
30 Jun 2020

This chart pattern could be extraordinarily bullish for gold

The mother of all patterns is developing in the gold charts, says Dominic Frisby. And if everything plays out well, gold could hit a price that invest…
1 Jul 2020
Global Economy

How “pent-up demand” could drive a V-shaped economic recovery

“Pent-up demand” is usually a myth. But not this time. The Covid lockdown has created genuine pent-up demand, says Merryn Somerset Webb. That’s now be…
29 Jun 2020