Andrew J. Spillane Wealth Management Ltd

Partner Practice of St. James's Place Wealth Management

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Cash interest

29 September 2017

At a time of high inflation and low bank rates, good cash management is more important than ever.

Unlike wine, cash does not age well. In 1331, £1 would have bought you 60 gallons of Gascony wine;1 today, it would cost you £2,363.92 in a mainstream UK supermarket.2

Yet even short timespans can prove expensive for cash savers, as recent months have shown. While the Bank of England rate sits at an all-time low of 0.25%, consumer price inflation struck 2.9% in August.3 The average no-notice account is currently paying 0.39% - ten years ago that figure was 4.34%.4

Yet for many businesses, ready access to cash is simply non-negotiable. Unforeseen disruptions can pose significant short-term threats to a business, among them supply chain delays, market digitisation, technological improvements, or costly regulatory changes. In extreme circumstances, cash liquidity can even make the difference between continuing and shutting down.

Conversely, ready cash can enable a business to grasp an unforeseen opportunity – or simply an opportunity it had long been waiting for. The capacity to make a new hire, acquire another business or enter a new market at the most opportune moment could all, ultimately, be subject to readily-accessible cash reserves.

Yet many businesses are storing that cash ineffectively. The amount of cash that UK SMEs hold in business current accounts has risen every quarter between the 2012 and the start of this year. As of the first quarter of 2017, total SME cash reserves stood at £104.2 billion. Some 96% of the UK’s current SME business current accounts are held at the Big Five UK banks. Yet four of the Big Five pay zero interest on business current accounts, while the fifth offers just 0.25%. As a result, cash holdings can severely constrain a business’s ability to use its assets productively.5

Time is money

It’s rare for a small business to have a dedicated finance manager but business owners don’t often have the time to continually research the best bank accounts, let alone to be opening, closing and maintaining multiple accounts. Yet business owners will still want to maximise the returns they can achieve on their capital, and do so without compromising on security and accessibility.

Finding the right cash management service is therefore particularly important. One crucial quality that the service should offer is a significant number of different accounts, since that will better enable business owners to strike the right balance between risk and return that best suits their needs. It also enables clients to diversify their deposits across a range of banks, often in a single transaction.

One example of such a service is Flagstone, which provides an easy way for business owners to seek to maximise returns on their cash and diversify risk.

The Flagstone online portal offers access to 24 banks and more than 450 instant access, notice and term – terms run up to five years. These include deposit rates which are not available to clients on the high street, but which are only obtainable due to the scale of assets held collectively through the portal.

It allows business owners to easily switch accounts from their panel of banks without further paperwork or lengthy waiting times. As a result, they can achieve better rates and reduce risk through diversification. A Flagstone account can usually be opened in 24-48 hours and there is no fee for transfers out of Flagstone.

For businesses, time is money. Moreover, in the current environment, the challenge facing business owners and individuals alike is to make their money work as hard as possible. Business owners who are concerned about their cash management might consider speaking to their St. James’s Place Partner so as to facilitate an introduction to the Flagstone service.

 

 

 

1 http://medieval.ucdavis.edu/120D/Money.html - taken from London in the Age of Chaucer, A. R. Myers, University of Oklahoma Press, Norman, 1972
2 https://www.tesco.com/groceries/product/details/default.aspx?id=266958006
3 https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7g7/mm23
4 Moneyfacts, September 2017
5 BBA ‘Bank support for SMEs’ - Q1 2017

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