For over a decade, it has been virtually impossible to find a business current account that pays a decent amount of interest. Most current accounts pay zero interest or minimal interest in exchange for a monthly account fee.
However, following over a dozen BoE base rate rises at the time of writing (Summer 2023), you can now invest any surplus cash you have in your current account into a business savings (deposit) account and earn 3-5% annual interest.
This means you can earn interest on any funds you put aside to meet your future VAT or Corporation Tax liabilities.
You will receive a higher amount of interest than for a current account, although you may have to give notice to withdraw funds in some cases.
This is a guide to business savings accounts. Also try our guide to business current accounts.
Read on to find out more about the different types of deposit accounts, things to consider when comparing providers. Plus a small selection of the current best deals – up to 5% AER.
Types of business savings accounts
Strictly speaking, there are three different types of business deposit accounts. Simply speaking, the longer you are prepared to leave your money in your account without withdrawing it, the higher the potential interest rate you can realise.
Instant Access accounts
An easy access savings account allows businesses to earn interest on spare funds while maintaining access to the money when needed. These accounts provide flexibility since you can deposit and withdraw at any time without having to provide notice. The main advantage is liquidity – the ability to transfer funds in and out as your cash flow needs change.
The tradeoff is that easy access accounts typically pay lower interest rates compared to accounts with withdrawal restrictions.
While most easy access accounts allow unlimited withdrawals, some may limit transfers out of the account to a certain number per month or year. Others may impose minimum account balances.
Notice savings accounts
With a notice savings account, your business must provide advance notice to the bank before withdrawing funds from the account. The required notice period typically ranges from 30 to 180 days.
In exchange for restricting access, notice accounts provide higher interest rates than easy access savings accounts. The longer the notice period, the higher the rate.
The notice period provides the benefit of earning a competitive interest yield while discouraging frequent withdrawals. This makes notice accounts a suitable option for surplus cash reserves not needed for regular business expenses. This might be handy for money your company has put aside to pay future Corporation Tax liabilities, for example.
Fixed term accounts
A fixed-term savings account allows businesses to lock away spare funds for a set period of time, such as 6 months, 1 year, or 5 years. In exchange, these accounts offer higher interest rates than easy access or notice savings accounts.
The main benefit of a fixed-term account is securing a guaranteed rate of return over the term length. This allows for reliable growth on surplus cash that is not needed for day-to-day operations or expenses.
For small companies, this is likely to appeal if you have surplus profits in your business which you won’t need to access for a fixed period of time.
Business savings accounts – which banks are most competitive?
The high street names (e.g. Lloyds, Barclays, Virgin Money) are slowly increasing interest rates across all types of deposit accounts: between the 2 and 3% mark presently.
However, you can achieve higher rates of interest with less well-known brands such as Aldermore and Shawbrook Bank.
Current best deals (July 2023)
- Aldermore Instant Access account – 3.05% – minimum deposit of £1000.
- Natwest Liquidity Manager 95 Day Notice account – 4% – mimimum deposit of £1.
- Redwood Bank 1 Year fixed term account – 4.8% – minimum deposit of £10,000.
A quick Google search will reveal the latest deposit account interest rates, or go to one of the many comparison sites out there. Moneyfacts is particularly good – with a large number of accounts listed.
How to compare business savings accounts
Clearly, when choosing a business savings account, the main focus as a contractor is to maximise the interest your company can earn on its savings.
Here is a full list of key factors to compare when choosing a new provider:
- Interest rates – This will likely be the deciding factor for most businesses. Compare AER rates across accounts with similar features.
- Access to funds – Understand withdrawal rules and penalties. Easy access offers flexibility but lower rates, while fixed-term and notice accounts have withdrawal restrictions.
- Fees – Check for monthly maintenance fees, transaction charges, or penalties for early withdrawals. These can erode interest earned.
- Minimum/maximum deposit – Some accounts require a minimum opening or ongoing balance. Also look for maximum deposit limits – these tend to apply more frequently with notice-bearing accounts.
- Additional features – Things like linking accounts, account management tools, mobile banking, ‘perks’.
- Accounting software integration – Can your savings account provider link to FreeAgent and Xero?
- FSCS protection – Up to £85,000 per authorised UK bank is secure under the Financial Services Compensation Scheme.
- Customer service – Check reviews and complaints. Having available UK-based telephone/chat support is ideal.
- Business services – Some banks cater specifically to business customers with dedicated account managers and ancillary services. As a contractor, you probably don’t require any ‘hands on’ help, but this is a personal decision.
- Brand reputation – Consider the bank’s financial strength and history in the UK market. Many of the highest interest-yielding accounts are provided by less familiar names.