Mixed news for small business bank accounts

05 10 2008 United Kingdom

The Mail on Sunday reports that the Financial Services Authority will consult on better protection for small businesses against their bank going bust, but the Observer warns that Barclays have increased their overdraft rate to 15.8 per cent

Small businesses have about £54 billion on deposit, according to the Mail on Sunday, and the Financial Services Authority (FSA) has announced that it is going to consult on extending the compensation scheme available to them.

The Mail says that under current rules they are covered in the same way as savers, who will be covered on the first £50,000 of deposits from this month.

The existing compensation scheme is restricted and very complex. It does not cover multiple accounts held in one bank, or deposits held in separate banks that come under the same registration with the Financial Services Authority.

The current rules could disadvantage sole traders who operate a personal account and a separate account for their business, both through the same bank. They would be covered only for one account up to £50,000.

Barclays Bank interest rates

The Observer revealed that Barclays has written to its customers raising the interest rates on overdrafts for some of its small business customers from 8 October.

Barclays revealed its overdraft rate for these customers would rise by 4 percentage points - a leap from 11.87 to 15.87 per cent.

The Federation of Small Businesses commented that the Competition Commission had hauled Britain's big banks over the coals for making excessive profits from small business customers. Their spokesperson, Stephen Alambritis, said: "It appears they are reverting to type and seeing who it is easiest to increase charges on."

Barclays said rates had not been reviewed for over three years, in which time "the cost of lending has substantially increased". A spokesman added: "For some customers, where account performance has improved over time, we have reduced rates and for some there will be no change.”

Stephen Alambritis explained that small enterprises depend on support from their banks, so they have fewer options for chasing better terms for loans and overdrafts or finding safer places to deposit their cash.

He told the Daily Telegraph: "Small businesses use their overdraft facilities more in a downturn as larger customers delay payments . . . Barclays realise that and are taking advantage of it."

Barclays has 650,000 small businesses as customers.

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