Reply to: Business Savings Accounts

[jamesbrown]

I imagine they take out insurance. But if you recall the Silicon Valley Bank failure around 1 year ago, there were many start ups that had all their cash in that bank. Initially they were wiped out (Friday), but then the government stepped in and announced it would cover it (Monday), bet that was a crazy weekend for some!

What insurance? You will not find insurance against bank failures outside of government backed deposit schemes, like FDIC and FSCS. Anyway, short-term gov't bonds are widely available, for example, and can be held until maturity, which guarantees the principal (obviously, you can lose money relative to inflation etc.).

[willendure]

Well they are two separate businesses and temporarily not being able to access a business account isn't a big problem. But given that 85k is pennies in the business world, how do businesses cover this? I imagine many even here have many times that and don't have accounts with 5-10 banks, and banks like HSBC are really geared to 500k+. Do companies take out insurance for this or do banks offer extra protection on large accounts?

Somewhat OT but I'm interested.

I imagine they take out insurance. But if you recall the Silicon Valley Bank failure around 1 year ago, there were many start ups that had all their cash in that bank. Initially they were wiped out (Friday), but then the government stepped in and announced it would cover it (Monday), bet that was a crazy weekend for some!

[jamesbrown]

I don't disagree but I just can't see a typical small business with a million or two in liquidity is setting up business banking with 10-20 different banks, neither can I imagine they like the idea that 90% of their reserves could be lost. As tiny businesses, we are quite lucky that we can reasonably distribute across 2-3 in most cases - is it just an accepted risk as a slightly larger company? I'm sure lots of companies need a million in instant access if they have high turnover and lower margins.

We are off-topic but it's got me interested. I don't know anyone as a friend who runs businesses of that size or I would ask them.

I guess there's a spectrum between all or nothing but I agree that, once you get into a balance sheet of millions, it's impractical to protect everything under FSCS, especially as it's per banking license, not per bank. In that case, I would probably bank with one of the big high-street lenders and distribute the reserves to some degree, putting anything that doesn't require short-term access into low-risk investments. Being classified a CIHC is obviously not an issue unless it's a close company. But, yes, any larger companies will either accept that risk or will have a risk & compliance team that deals with all sorts of risks. I expect the companies most exposed to these risks are small/mid-sized companies that bank with specialist institutions like Aldermore or Allica, which might be bailed out, ultimately, but also might not.

[d000hg]

No, there is no insurance like that. It would be nice if the NS&I products were available for businesses, but they aren't. You can invest company money in gov't bonds or other low risk investments, of course, but they will qualify as investments w/r to the CIHC rules. Beyond that, the only realistic way to manage existential risks is to distribute your reserves.

I don't disagree but I just can't see a typical small business with a million or two in liquidity is setting up business banking with 10-20 different banks, neither can I imagine they like the idea that 90% of their reserves could be lost. As tiny businesses, we are quite lucky that we can reasonably distribute across 2-3 in most cases - is it just an accepted risk as a slightly larger company? I'm sure lots of companies need a million in instant access if they have high turnover and lower margins.

We are off-topic but it's got me interested. I don't know anyone as a friend who runs businesses of that size or I would ask them.

[jamesbrown]

That said, I would always be very careful with Tech Bro institutions whose products are not backed by the FSCS, like Revolut and Wise, as they are definitely not too big to fail. In the case of Wise, it would be less risk to use their asset/bond-backed investments than have a lot of funds sitting in their other savings schemes.

[jamesbrown]

It's not that hard, no, but it's a faff. I should imagine even on CUK, many people are pushing 7 figures in their businesses so that means managing 10 bank accounts. I'm not talking big businesses like Tesco, but one with a couple of dozen employees. They might have a balance of a few million but I very much doubt they have dozens of accounts with different banks. We've already said some business savings accounts have a minimum of £50k so they clearly are dealing with 6 or 7 figure sums as the norm. I wondered if you can simply take out cheap insurance against banks failing, but tbh I would imagine in that case the insurer couldn't make the payments anyway Not sure anyone other than the government could cover that?

No, there is no insurance like that. It would be nice if the NS&I products were available for businesses, but they aren't. You can invest company money in gov't bonds or other low risk investments, of course, but they will qualify as investments w/r to the CIHC rules. Beyond that, the only realistic way to manage existential risks is to distribute your reserves. Overall, it probably does make sense to distribute the company money a little but, like I said, the risk is more conceptual than real with high-street banks like HSBC and, most likely, even the smaller banks, as we've seen with recent failures in other jurisdictions. The gov't will always consider the worst that can happen w/r to financial stability if they let a bank fail.

[pr1]

It's not that hard, no, but it's a faff. I should imagine even on CUK, many people are pushing 7 figures in their businesses so that means managing 10 bank accounts. I'm not talking big businesses like Tesco, but one with a couple of dozen employees. They might have a balance of a few million but I very much doubt they have dozens of accounts with different banks. We've already said some business savings accounts have a minimum of £50k so they clearly are dealing with 6 or 7 figure sums as the norm. I wondered if you can simply take out cheap insurance against banks failing, but tbh I would imagine in that case the insurer couldn't make the payments anyway Not sure anyone other than the government could cover that?

to each their own

[d000hg]

It isn't that hard to have accounts with multiple banks. Also, £85k isn't really pennies in the business world. IIRC, about 95% of all UK businesses are micro entities under the CA 2006. Not worth considering how larger companies hedge risk because that is a different world, but businesses small and large can ultimately go tits up quite easily when their banks fail (see recent failures of technology-oriented US banks, for example, and the downstream consequences of that, or what would've been consequences if they weren't bailed out). All that said, the large high-street banks are still too big to fail, so the risk is somewhat conceptual.

It's not that hard, no, but it's a faff. I should imagine even on CUK, many people are pushing 7 figures in their businesses so that means managing 10 bank accounts. I'm not talking big businesses like Tesco, but one with a couple of dozen employees. They might have a balance of a few million but I very much doubt they have dozens of accounts with different banks. We've already said some business savings accounts have a minimum of £50k so they clearly are dealing with 6 or 7 figure sums as the norm. I wondered if you can simply take out cheap insurance against banks failing, but tbh I would imagine in that case the insurer couldn't make the payments anyway Not sure anyone other than the government could cover that?

[ensignia]

I've got a 120 day notice account with Virgin Money (soon to be taken over by Nationwide).

Getting a reasonable return from the amount I've got in there, but accessing those funds is truly a ballache which they neglect to tell you when onboarding.

Will move to Tide when they start offering their easy access saver to existing customers.

[jamesbrown]

Well they are two separate businesses and temporarily not being able to access a business account isn't a big problem. But given that 85k is pennies in the business world, how do businesses cover this? I imagine many even here have many times that and don't have accounts with 5-10 banks, and banks like HSBC are really geared to 500k+. Do companies take out insurance for this or do banks offer extra protection on large accounts?

Somewhat OT but I'm interested.

It isn't that hard to have accounts with multiple banks. Also, £85k isn't really pennies in the business world. IIRC, about 95% of all UK businesses are micro entities under the CA 2006. Not worth considering how larger companies hedge risk because that is a different world, but businesses small and large can ultimately go tits up quite easily when their banks fail (see recent failures of technology-oriented US banks, for example, and the downstream consequences of that, or what would've been consequences if they weren't bailed out). All that said, the large high-street banks are still too big to fail, so the risk is somewhat conceptual.

[alphadog]

I hadn't seen that one, or had misread the details. Thanks. So if you withdraw do you simply lose interest for that month or is it more punitive?

You can’t withdraw any of the deposit before it matures if you’ve invested £50,000 or more

[d000hg]

You have multiple six-figure balances all with the same bank? You know FSCS only covers £85k per institution? Interest rates aside I think you should be spreading your money out a bit more just in case - even if it's just to avoid being completely locked out of your money in the case of a temporary HSBC outage etc

Well they are two separate businesses and temporarily not being able to access a business account isn't a big problem. But given that 85k is pennies in the business world, how do businesses cover this? I imagine many even here have many times that and don't have accounts with 5-10 banks, and banks like HSBC are really geared to 500k+. Do companies take out insurance for this or do banks offer extra protection on large accounts?

Somewhat OT but I'm interested.

[pr1]

It has rather caught me off-guard that as interest rates rose, you can actually get non-trivial business savings rates now. I always have a HSBC BMM account which pays a pittance (.1%) so I stopped using it, but looking around I see rates from 2% to in excess of 4%.

With very few, predictable expenditures, I can potentially keep the bulk of company money in a savings account and make a few grand a year. I'm kicking myself to have been remiss in this tbh.

Rules on interest being somewhat varied - some allow instant access but will reduce interest if you use this facility - I'd like to hear any recommendations and advice. Tide looks somewhat the obvious winner, but too good to be true?

Both my contractor Ltd and my wife & my other business accounts are with HSBC and have been sitting with 6-figure balances somewhat stably. I guess there's no reason a savings account should be with the same bank though it's slightly more convenient. HSBC only seem to offer about 2% by their "Kinetic savings" option and not needing another login doesn't seem to justify £1000+ per year

You have multiple six-figure balances all with the same bank? You know FSCS only covers £85k per institution? Interest rates aside I think you should be spreading your money out a bit more just in case - even if it's just to avoid being completely locked out of your money in the case of a temporary HSBC outage etc

[jamesbrown]

If you don't mind tying the money up for a year, you'll do a lot better than easy access (e.g., V.M. one-year bond @ 5.15%, similar for Allica Bank, Shawbrook and others. There are also 6-month bonds at around ~5%). Tide is OK - the interface is a bit 1990s and they are a bit over-zealous on their KYC checks, TBH.

[Ketto]

I use Tide, 4.33% instant access. Very easy to set up.

There is a 20p per transaction fee but i’m typically only incurring that once a month when i transfer a chunk of any incoming invoices in.

Had an issue with incoming payments once as i must have triggered some fraud check or other, had to provide some documents and answer questions to prove the business was legit. The savings account is also not integrated to FreeAgent so you have to add manual transactions to keep your balances up to date.

But has been very easy to use other than that and getting a nice interest payment a month now.