Proactive Investors - Banks are being accused of shortchanging smaller businesses by offering them poorer interest rates on their cash compared to larger companies, reports on Monday revealed.
Writing to the Treasury Select Committee, Richard Davies, the chief executive officer for Allica Bank, claimed banks should be paying an additional £7.5 billion in interest to small and medium enterprises (SMEs) for the cash they have deposited.
“This is either because their savings are being left in accounts offering no interest or – worse in our eyes – because SMEs are being systematically offered lower interest rates for their savings than the rates offered to large companies,” Davies said.
Adding that there are “major issues” within the SME market, the bank chief pointed to a lack of transparency as one reason why smaller businesses weren’t getting a better deal.
“We are writing to urge you to extend the Treasury Select Committee’s current SME Finance inquiry to include a specific investigation into the SME business savings market,” he added in his letter.
MPs are currently setting up an investigation and are assessing information to help inform which areas they should be looking at.
Estimates from Allica Bank predict around £150 billion of deposits from small businesses in the UK are sat in accounts which don’t pay interest, while another £125 billion in funds are falling victim to “a hidden SME penalty” which sees them offered interest rates two percentage points lower than what is given to larger companies.
“Frankly, it is a scandal,” Davies said.
A spokesperson for UK Finance, the organisation which represents UK banks, said: “The business deposits market is competitive, with a wide variety of products, offering different rates and ease of access for SMEs.
“We would encourage SMEs to shop around to ensure that they get the product that best meets their needs.”