This comes as the neobroker releases analysis on new Bank of England data highlighting the increase in the total amount of cash British businesses hold - nearly half a trillion pounds - but the near-to-nothing interest rate the majority of it gets.

Existing options for businesses to put their corporate cash to work are limited

SMEs account for 99% of all businesses in the UK, but rarely get access to accounts where they can put their money to work, because these are traditionally reserved for larger corporates. Business accounts with high street banks are hard to get and pay out little-to-no interest. If smaller businesses can get access, they often must go through a long, arduous process to access the stock market.

Other recent options that have appeared in recent years in the fintech sector often still don’t allow certain types of businesses (SMEs in particular) to open accounts, and if they do, they come with stringent deposit criteria, high fees, and uncompetitive (or non-existent) interest offerings. Any interest-earning products on the market out there for businesses often lock in rates and add a plethora of service fees on top, ultimately reducing the value that’s passed back to the customer.

The result of this is: nearly half a trillion of businesses’ savings earns near-to-nothing in interest. According to Lightyear’s analysis of Bank of England data published on 01.07.24, businesses hold more cash than credit; the total amount of money held in deposits by private businesses in the UK has been rising since 2008 (when reporting started) - with a spike since COVID - and is continuing to trend upwards. It overtook the amount lent to businesses in 2017. The recent release of May’s figures reveals that businesses now hold £562 billion in deposits, vs £449 billion in credit.

But, whilst businesses have over half a trillion pounds that could be put to work, £426 billion of it (76%) is sitting in savings or current accounts with an average interest rate of just 1.7%.

This is despite the Bank of England holding base rate at 5.25% in the most recent decision.

With rates not expected to drop below 4% in the next 5 years, Lightyear is now encouraging British businesses to look elsewhere if they’re keeping their money in high street banks, and find somewhere where they can make the most out of high rates. The company is launching business accounts to help them do that.

Andy Davis is the owner of small business ‘The Investors Media Company LTD’, where he writes about finance for various clients. He’s one of the first beta users of Lightyear’s business accounts, which are launching today: “I knew how valuable money market funds could be for my company because of my work as a freelance finance writer. But this is the root of the problem: you shouldn’t have to have a business in the finance industry to know about this. All small businesses should have access to straightforward business accounts that follow the Bank of England rate. But that option hasn’t existed until now. I previously used an account from my bank that put my cash into money market funds, but I had to give a month’s notice to withdraw and the rate I received was less than half the Bank of England’s base rate. That defeats the purpose. I need to earn as much interest as I can on my company’s money, but it also needs to be properly liquid so I have an easily accessible cushion for quiet periods to smooth out my cash flow. With the account that Lightyear offers, I get the same deal as big companies that have been using money market funds for decades. That’s a massive step forward for small businesses like mine.”

Lightyear unlocks access for SMEs to a product traditionally reserved for large corporates

The fact that 76% of all business deposits sit in savings accounts with low rates indicates that businesses either aren’t looking around for deals that provide a better return on their money, or that there aren’t enough providers offering better. Businesses need somewhere to park their cash where it’s easily accessible, so they can jump on opportunities to grow and maintain positive cash flow.

Lightyear’s launch of business accounts will help companies in the UK make the most of their company funds, ensuring that excess corporate cash isn’t eaten up by inflation while sitting in bank current accounts.

The neobroker will start offering businesses 5.14% AER on GBP, through their new treasury product; money is held in Money Market Funds (MMFs) by BlackRock - the world’s largest asset manager by AUM (over $10 trillion); these are highly liquid, low investment risk funds, traditionally reserved for large corporates who can buy in with a £1 million minimum investment. These funds track the Bank of England base rate, a privilege also usually reserved for larger companies.

Lightyear’s easy access, flexible and high interest treasury product helps British businesses make the most of the globally high base rate across three major currencies without constant foreign exchange fees, paying 5.14% AER in GBP, 5.37% in USD and 3.62% in EUR (as of 19.07.24). All three currencies will be the highest available interest yield for businesses on the platform, giving overnight interest that accrues daily and pays out monthly.

The neobroker also offers 4.5% interest on businesses’ uninvested GBP (variable), but their treasury product allows businesses to benefit from an even higher interest rate than this on all three currencies, due to holding money in the AAA-rated money market funds by BlackRock.

Lightyear will give businesses of all sizes access to their treasury product, without the traditional £1m minimum investment criteria. In fact, they’ll be no minimum deposit (or maximum deposit) criteria for a business to use the platform. There’ll also be no account management fees, and the same low pricing that Lightyear’s retail customers get (with free ETFs). There’s a simple and flat 0.25% fee (same as for retail customers), but all numbers shown are net of fees (so the 5.14% AER is the actual amount businesses on Lightyear will receive). The rates are variable and subject to change.

As well as providing interest via money market funds and on uninvested cash, on the investing side Lightyear will give businesses access to 3,500+ international stocks and ETFs across the US, UK & Europe. Lightyear launched in the UK for retail users in September 2021.

Martin Sokk, co-founder & CEO of Lightyear: “There’s lots of talk around how banks don’t pass on high rates to consumers’ savings. But what about businesses’ savings? The narrative around SMEs is dominated by problems they face trying to get finance; people presume SMEs don’t have money to put to work. But, as our analysis proves, they certainly do. British businesses now have more cash than credit. What’s shocking is that nearly half a trillion pounds of it earns 1.7% interest. With the current economic situation, it’s incredibly important that businesses become smart about where they put their cash. But existing options for them to do this are practically non-existent.

At Lightyear we’ve worked hard on making sure our retail customers can grow their wealth, so with today’s launch of our business accounts, I’m excited to do the same for SMEs. The market is certainly in need of a huge shake up.”