SMEs favour safety over yield on cash

Flagstone says UK SMEs continue to prioritise perceived safety and convenience over stronger returns when managing reserve cash, even when that decision leaves money on the table. New research from the savings platform suggests 73% of SMEs save mostly or entirely with high street banks, while only 13% save mostly or entirely with online or challenger providers, and a further 13% use an even split.

The study points to a clear returns gap. Flagstone said an SME saving exclusively with high street banks could earn as much as 237% less than it might with challengers, depending on account type. Based on current rate comparisons in the study, the company said a mid-sized business with £620,734 in instant-access reserves could be missing out on an average £8,379.91 a year in interest, while small businesses with £224,673 held in reserve could be losing £3,482.43.

The research suggests the preference is driven by four factors: safety, trust, convenience, and habit. Nearly two thirds of SMEs said they viewed high street banks as safer than challengers, rising to 73% among mid-sized businesses. Three quarters said protecting company cash mattered more than securing higher returns, and 60% said better rates alone were not enough to persuade them to switch. At the same time, 60% said they knew they could spread funds across multiple providers to reduce risk and improve returns, but either lacked the time or found the process too complex.

Lakhbir Sandhu, CFO of Flagstone, said: “When the vast majority of UK businesses continue to favour traditional banks despite rate competition driven by challenger banks, it sends a clear signal: rates alone aren’t enough to encourage businesses to change their savings habits. The deeper we dig into the data, the clearer it becomes that SME finance leaders are looking for a number of benefits from the savings providers they use: trust, return, convenience and flexibility.”

Flagstone said that focus on safety does not always translate into fully protected cash positions. According to the research, 43% of small SMEs admitted to saving all their cash with one bank, while 85% of mid-sized SMEs with average cash holdings of £621,000 save across three or fewer banks.

Sandhu said finance leaders should pay closer attention to protection as well as yield: “When over 4 in 5 SMEs with over £600,000 in cash save with three or fewer banks, it’s unlikely they are achieving full FSCS protection. However, when risk mitigation ranks so highly among SMEs, finding ways to ensure adequate FSCS protection on their cash should be a priority for finance leaders.”