Do you know if your banking arrangements are fairly priced? Do you ever look around to see if there’s a better deal to be had? With a little time invested, whether online or in bank branches, you might find yourself a lower-priced tariff.
Everyone and every business should periodically check the market. You do so for vehicle or home insurance, so why not with your business bank account?
To undertake a comparison you need to understand what you want from a bank and the standards you would wish it to apply to the way it operates. You may want an ethical bank that has strong investment policies that observe social responsibility or human rights, or you may just want a bank that adheres to Islamic banking principles.
Consider also those things that you think important such as the services a bank needs to offer you and their cost; how charges are applied to facilities; whether there are additional charges; whether there are enough, or any, branches near where they might be needed; whether the bank has a small business section; and – something that never goes amiss – whether there are any special incentives such as free banking to help you make the decision to move.
With all of this in mind, you can start your search. Helpfully, the British Bankers Association (BBA) has an online account finder. It’s quite a simple process to follow as it uses tick boxes to identify the nature of the enquiry, the type of business you are and the facilities you are looking for such as a branch account or overdraft.
Next, you’ll be presented with a table noting those banks that match the search. A cursory look should show you a wide range in pricing.
For example, of the main four banks, a cheque written will cost you as much as 79p (Barclays Free Automated Transaction Tariff) or as little as nothing (HSBC Business Direct Tariff), assuming you issue fewer than 20 cheques per month – £1 per cheque otherwise.
Cheques banked can cost as much as 84p per item (Natwest Business Plus) and again, they can be banked free with HSBC (Business Direct).
Cash is something that the banks want to minimise – it’s obviously a huge cost to process. Again, there’s a huge range in the charges levied for handling cash. The big four will charge anywhere from 53p per £100 (HSBC Small Business) up to £2 per £100 banked (HSBC Business Direct).
Have you heard of these?
There are, of course, banks other than the main four. Indeed, there are names that you’ve probably not heard of that offer deals that are well worth looking at. For example, Bank of China (UK) will, with its Private/Public Account only charge 50p per cheque written, 25p per cheque credited, 0.2% for cash banked and nothing at all for cash taken out, direct debits and standing orders. There’s a charge of £15 per month. Even better, you only need £50 to open an account.
An alternative is Butterfield Private Bank that requires £10,000 to open a private bank account but then charges 50p per cheque in or out, with the first 20 items free, with no other charges for electronic transactions. It doesn’t handle cash deposits or withdrawals but if that’s not important you can open an account and receive 0.1% gross interest and benefit from no monthly charges, assuming you keep £50,000 on deposit.
And at the other end of the alphabet, Whiteaway Laidlaw Bank has a business current account that charges £50 per quarter and then 22p per £100 per credit / debit irrespective of whether the money is cash, cheque or electronic.
Definition of ‘free’
One other place to look is the Federation of Small Businesses. It has a tie up with the Co-operative Bank where members can take advantage of free banking. “Free” has a definition though: as many cheques in or out but a deposit of up to £4,000 in cash per month. There’s a fee-free overdraft facility (you pay no arrangement fees), free change facility and you receive interest on credit balances from 0.12 to 0.28% gross depending on the balance.
Ethical banks, mentioned earlier, aren’t listed on comparison websites. They need to be hunted out. Google “ethical banks” and various options appear including a link to a list on Wikipedia. There are 17 banks on the list including the Co-operative Bank and Triodos Bank that operate in the UK.
You will also need to look online for banks that follow Islamic principles. A quick search reveals names such as the Islamic Bank of Britain and LloydsTSB that operate in this sector.
Of course there’s more to choosing an account than just the simple cost of banking. You also need to consider the cost of any merchant services and the rates of interest paid on the deposit accounts. You may also want a business credit card so that personal and business finances can be kept separate.
‘Best buy’ chart
Turning to business deposit accounts, the BBA product finder is of little use as it’s only concerned with current accounts. One source of advice in this area is Moneyfacts which features a “best buy” chart. Sadly, with the historically low interest rates, depositors aren’t going to get rich on their money.
That said, if you’re prepared to lock up at least £10,000 for 120 days, you’d be able to get an account that pays 2.97% gross. For shorter term deposits, Bank of Cyprus (UK) will pay 1.75% gross on minimum deposits of £1 that are held in a 35-day notice account. Not great, but better than nothing.
Finding the best deals on long-term deposit accounts is harder and requires another website – Fairinvestment. This site features other products such as RBS’s Royal Deposit Plan which requires a minimum single investment of £3,600 for a three-year term in exchange for which it will pay 4% gross. A one-year investment product with Cater Allen Private Bank wants a minimum of £50,000 but it will pay 2.2% gross.
Comprehensive listing
Comparing business credit cards is tricky as finding a decent comparison site is nigh on impossible. Moneysupermarket seems to offer the most comprehensive listing – only seven cards though. A search of Google for “business credit card” works, but is very disparate indeed.
You’ll notice that the deals aren’t as good as those offered to private individuals because they generally require an annual fee which can range from £32 up to £78. That said, they do have extras bolted on.
For example, American Express Nectar for Business offers a card with no annual fee and which can be used to earn Nectar points. The Barclaycard Commercial Visa Business Gold offers 90-day purchase protection, travel accident cover and card holder misuse insurance.
If you are going to pay off the bill entirely each month, then the bolt-ons are the things you need to consider. But if you might be using the card as a method of borrowing, then you should be reading the headline interest rate. Again, there is a wide variation.
The HSBC Commercial Card is one of the lowest in that it charges a typical (variable) APR of 15.9%. At the other end of the spectrum is the Barclaycard Commercial Visa Business Gold which will charge 26.9% APR.
The flipside of using credit cards is accepting them. There are numerous reasons to accept cards including lower risk of cash loss through theft, improved cash flow and the plain fact that people like to pay on card – it’s convenient. Choosing a merchant acquirer is a huge subject in its own right. For more detail on the options available and a full listing of the acquirers, see the UK Card Association’s Retailers and Cards
website.
All “payment service providers”, such as banks or building societies, need to be registered with the Financial Services Authority and must comply with the Banking Conduct of Business Sourcebook (BCOBS), which took effect on 1st November 2009.
This sets out the rules which financial institutions must comply with in regard to charges that can be made, the length of transaction times and the types and presentation of information that must be provided to customers. The BCOBS also covers the procedures and timings for switching between banks.
Ombudsman service
Remember that if all goes wrong and you find yourself wanting to seek redress against a bank or other financial institution, you do – assuming that as a business your turnover is under £1 million – have back-up in the form of the Financial Ombudsman Services. The FOS has rigid rules that must be followed though.
Please note that the rates quoted were correct at the time of writing so do look carefully at the deals being offered. Make a point of regularly checking the deals you are signed up to.
But even though the rates can and do change, remember that the key lesson here is that you may be able to make savings on your banking arrangements, especially if you use different banks for different services. Whilst you might lose some continuity, you could make further savings.
Lastly, keep in mind that rates are often negotiable – be tough!
