How Much Interest Can a Business Earn on Savings?
Rosie Goymour
Many businesses hold more cash than they realise in accounts that are earning almost nothing. The current account pays little or no interest in most cases, and the habit of keeping all cash in one place, regardless of when it is actually needed, is one of the more quietly costly decisions a business owner makes without really making it. Business savings accounts are widely available, straightforward to open, and currently paying rates that make the decision to move surplus cash a fairly easy one.
What Business Savings Accounts Are Currently Paying
At the time of writing, business savings accounts from specialist and challenger banks are paying the following approximate rates.
Easy access accounts: around 3.9% AER. These allow withdrawals at any time with no notice or penalty. The rate is variable and moves broadly in line with the Bank of England base rate.
Notice accounts: around 4.0% to 4.1% AER for 60 to 95-day notice periods. The rate is typically variable, but the commitment to give advance notice before withdrawal earns a small premium over easy access.
Fixed-term accounts (1 year): around 4.2% to 4.6% AER. The rate is fixed for the full term and does not move regardless of what happens to base rate. Early withdrawal is typically not possible, or carries a substantial penalty.
These rates represent the leading end of the market from specialist savings banks. High street bank rates for business savings accounts are generally lower. The gap between the best-available rate and what a traditional bank offers on a business savings account can be a full percentage point or more, which is a meaningful difference on significant balances.
What Different Balance Sizes Actually Earn
Translating a percentage rate into a pound figure makes it easier to assess whether the effort of opening a savings account is worth the return. The figures below use current approximate rates and assume interest is paid annually.
£10,000 balance:
Easy access at 3.9%: £390 per year
1-year fixed at 4.6%: £460 per year
£50,000 balance:
Easy access at 3.9%: £1,950 per year
1-year fixed at 4.6%: £2,300 per year
£100,000 balance:
Easy access at 3.9%: £3,900 per year
1-year fixed at 4.6%: £4,600 per year
These are gross figures before tax. A limited company paying corporation tax at 19% retains around 81p in every pound of interest earned. On a £50,000 easy access balance earning £1,950 gross, the net after-tax return is around £1,580. The interest is still worth earning; the tax simply needs to be factored into the real return calculation.
What Affects How Much You Earn
The headline rate is the starting point, but several factors affect the actual return your business receives.
Minimum deposit requirements. Many of the highest-rate savings accounts have minimum deposit requirements, typically ranging from £1,000 to £20,000 or more for fixed-term bonds. If your available cash falls below the minimum, the accounts offering the best rates may not be accessible.
Interest payment frequency. Some accounts pay interest monthly, which allows the interest itself to start earning if it is left in the account. Others pay at maturity, which means a 12-month fixed account does not deliver interest until it closes. Monthly interest payments compound slightly better over time and can help with cash flow if you were expecting that income during the year.
Account type. As the table above shows, the type of account you choose has a direct impact on the rate available. Easy access pays less than fixed-term. The more certainty you can offer about not needing the funds, the higher the rate tends to be.
Provider. Rates vary by provider even within the same account type. Two notice accounts with the same 90-day notice period can pay meaningfully different rates. Comparing across providers rather than accepting the first available option consistently produces better outcomes.
The After-Tax Return Is What Matters
The gross interest rate is the number that appears in comparisons and marketing. The number that matters for your business is the after-tax return, since the interest is taxable income for both limited companies and sole traders.
For a limited company at the 19% small profits corporation tax rate, a 4.0% gross rate produces a net return of around 3.2%. For a higher rate taxpaying sole trader, the same 4.0% rate produces around 2.4% net. Knowing your effective tax rate on business income allows you to make a meaningful comparison between savings rates rather than just comparing headline figures.
Even on an after-tax basis, the return from a business savings account compares well to leaving cash in a current account earning nothing. The question is not whether it is worth moving surplus cash to a savings account. For most businesses holding meaningful cash balances, it clearly is. The question is which type of account, with which rate and which access terms, fits how your business actually uses its cash reserves.
Frequently asked questions
Are business savings rates the same as personal savings rates?
Not necessarily. Business savings accounts are distinct products and the rates available do not always mirror what personal savings accounts are paying at the same time. The market for business savings is smaller and the product range is narrower, with fewer providers competing than in the personal savings market. At any given point, the best business savings rate may be higher or lower than the best personal rate, and the two should be compared independently rather than assumed to track each other.
Do interest rates vary by the size of my deposit?
They can. Some providers offer tiered rates where larger deposits earn a higher percentage. Others have minimum deposit thresholds below which the account is not available, or above which a preferential rate applies. It is worth checking the full rate schedule for any account you are considering, particularly if your balance is likely to change significantly during the saving period.
How often do easy access savings rates change?
Variable rates on easy access and notice accounts can change at any time, though in practice providers tend to move rates when the Bank of England base rate changes or in response to competitive pressure from other providers. Significant rate changes are usually communicated to existing account holders in advance. Fixed-term accounts are not affected by rate changes during the term.
Is the interest paid automatically or do I need to claim it?
Interest is credited to your account automatically by the provider, either monthly or at the end of the term depending on the account. You do not need to take any action to receive it. What you do need to do is declare it on your tax return and pay the tax due, since most business savings accounts pay interest gross without any tax deducted at source.
This article is for informational purposes only and does not constitute financial advice. Always seek independent advice before making financial decisions.
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