Big banks short-change SMEs as interest rates reduce
Big banks continue to offer their SME customers poor rates on their hard-earned savings, which have declined further following the drop in the Bank of England Base Rate in February.
Since January 2023, Allica Bank’s independent Monthly Savings Tracker has been monitoring average savings rates offered by the big banks, relative to the savings interest rates offered by challenger banks for comparable SME savings products.
Updated research for the first quarter of 2025 shows that a significant savings gap remains, reaching 2.83% in February. It means businesses are missing out on big sums of money by keeping their cash with the big banks.
While the savings gap has reduced marginally since last quarter, this follows the big banks lowering their interest rates down to a measly 1.28% on average. At the same time, they offer big corporates premium rates. According to Allica’s research, corporates on average receive an interest rate that is 2.9% higher than that offered to SMEs.
Challenger banks, on the other hand, are prioritising the needs of SMEs, continuing to offer them competitive rates. In February, SMEs could earn up to 4.11% on the same cash if they banked with a challenger.
In real terms, this gap equates to interest of £2,123 each year for small businesses with average savings of £75,000. For a more established business with £1,000,000 in the bank, this amounts to £28,300 of extra cash every year simply for switching bank.
Given that there are 5.5 million SMEs in the UK, the cumulative effect of this discrepancy on local economies is significant. Allica estimates that the UK’s small firms are being short-changed by up to £9bn a year in total in missing interest. That’s a sum that could make a huge difference in the current economic climate.
The variation in interest rates offered to companies of different sizes is driven by big banks exploiting the lack of transparency in the market. These banks also take advantage of the fact that small business owners rarely have time to shop around to get a good deal, unlike the treasury departments of corporate customers.
Allica is calling for an urgent review of the savings market so that money can be redirected from the pockets of big banks to small business owners and local communities. Steps should be taken by government and regulators to force big banks to notify their SME customers of the top rates in the market and where they can be found. Better options are out there – SMEs just need to know where to look.
Richard Davies, CEO of Allica Bank, said: “We started this research in 2023, and in 2025 it’s clear that the SME savings market is still broken. 
“While large corporates are getting premium rates from the big banks, many UK SMEs are acquiring little to no interest on their savings.
“With little market transparency, SMEs are often left unaware that challengers are offering them far better rates. It’s time for this to change, so that SMEs can get a fair deal, helping their businesses to thrive and releasing billions of pounds into the real economy.
“This is especially the case for the established businesses that Allica serves. They will typically have larger sums of cash on their balance sheet, which could see them missing out on tens of thousands of pounds. That kind of money could really help take some pressure off business owners at a time when costs have only been increasing.”
Calls for action
Allica Bank has previously called for an investigation into the business savings market by government and regulators.
Together with the Federation of Small Businesses (FSB), Institute of Directors and (IoD) and British Independent Retailers Association (BIRA), the Great British Savings Squeeze campaign was formed.
The campaign asks for an immediate investigation into the business savings market, with a focus on asking government and regulators to repair the broken elements and get small businesses they money they deserve.
Specifically, the campaign is calling for the following:
- End the SME savings penalty – get banks to start offering small businesses the same savings rates as big firms
- Notify SMEs of better rates – banks should actively notify their SME customers of what the top 3 rates in the market are
- Increase protections for SME deposits – give small firms confidence to save large amounts with all banks, by raising limits for the small business Financial Services Compensation Scheme