By Maximilian Clarke

One in four businesses turning over in excess of £1 million are sitting on large cash reserves as business development plans are put on hold during the period of continued economic uncertainty.

Research from Investec Bank puts the figure in excess of £86,000 per firm. Much of this is being held in business deposit accounts yielding low returns, with £86,000 generating just £576 a year.

Small businesses have around £56.8 billion in deposits with banks, and if they are receiving the average interest rate in the market, the annual return they would receive would be around £380 million. Back in July 2006 when Investec estimates that the average interest rate on business deposit accounts was 2.96%8 Gross AER, the corresponding figure would have been £1.68 billion.

“With the Bank of England base rate at 0.5%, many business deposit accounts are paying low returns, in many cases much less than 0.5%. Indeed, our research shows that 32.4% of business deposit accounts are paying 0.1% or less on balances of £50,000,” said Linda McBain of Investec Bank.

“However, with many different business deposit accounts to choose from, you don’t have to accept this and you may be able to secure a return on your money that is higher than 2% Gross AER, for example.”

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