Business & Technology
UK SMEs favour high street banks despite lower rates
New research from Flagstone suggests UK SMEs favour high street banks over challenger and online providers for business savings, even though many mid-sized firms hold cash above Financial Services Compensation Scheme protection limits.
The study of 500 UK SMEs found that 73% save mostly or entirely with high street banks. Another 13% use an even split between high street and challenger banks, while 13% save mostly or entirely with online or challenger providers.
That preference persists despite a clear gap in average savings rates. Flagstone compared instant-access and fixed-term products from four large high street banks and four challenger banks, finding that challengers offered higher average rates in every category.
For instant-access accounts, the average rate from a high street bank was 1.15%, compared with 3.87% from a challenger bank. On six-month fixed terms, the average rates were 2.25% and 3.80% respectively, while 12-month fixed terms were 2.60% and 3.95%.
Based on average cash reserve balances, a micro business with £66,232 in instant-access cash could miss out on £1,801.51 a year in interest by saving exclusively with high street banks. For a small business with £224,673 in instant-access reserves, the annual shortfall was estimated at £3,482.43.
Among mid-sized businesses with average instant-access cash reserves of £620,734, the missed interest opportunity rose to £8,379.91 a year. That means some larger SMEs could be earning as much as 237% less than they might secure with challenger providers.
Why it happens
The data points to a mix of caution, familiarity and administrative burden. Nearly two-thirds of SMEs said they prefer high street banks because they see them as safer, a view that was stronger among larger businesses and those holding bigger cash balances.
The research found that 75% of SMEs believe protecting company cash is more important than maximising returns, even if that means accepting lower rates. A further 60% said higher rates alone would not persuade them to switch banks.
Trust in newer providers remains a barrier. Some 61% said they would rather hold company cash with established high street banks even when those banks offer lower interest rates, while 68% said they would consider challenger banks if they had more confidence in their track record.
Convenience also featured strongly. Three in five SMEs said they know they could spread money across several banks to reduce risk and improve returns, but either lack the time or see the process as too complicated to manage. Three-quarters said they prefer to keep company savings with their main day-to-day banking provider.
“When the vast majority of UK businesses continue to favour traditional banks despite rate competition driven by challenger banks, it sends a clear signal: rates alone aren’t enough to encourage businesses to change their savings habits. The deeper we dig into the data, the clearer it becomes that SME finance leaders are looking for a number of benefits from the savings providers they use: trust, return, convenience and flexibility,” Lakhbir Sandhu, Chief Financial Officer at Flagstone, said.
Protection limits
The research also highlighted a gap between concerns about safety and how many businesses actually distribute their cash. Under the FSCS rules cited in the findings, an account holder should not hold more than £120,000 with a single banking group if they want full protection should that bank fail.
Among small SMEs, two in five were estimated to have cash reserves that were not fully protected by the scheme. The average small SME held about £225,000 in two or fewer savings accounts, and 43% said they kept all their cash with a single bank.
The picture was more pronounced among mid-sized businesses. At least 85% were likely to have cash reserves that were not fully protected, with average cash holdings of £621,000 spread across three or fewer banks.
These findings suggest many finance teams are prioritising institutions they view as safe while still concentrating sums above compensation thresholds in only a small number of places. The result is a mismatch between stated caution and actual protection.
“When over 4 in 5 SMEs with over £600,000 in cash save with three or fewer banks, it’s unlikely they are achieving full FSCS protection. However, when risk mitigation ranks so highly among SMEs, finding ways to ensure adequate FSCS protection on their cash should be a priority for finance leaders. While the financial services industry has more guardrails than ever, it’s not a market exempt from risk,” Sandhu said.
Gas network company SGN confirmed it had repaired three minor gas leaks and left the site on Monday, August 3, six days earlier than expected.
The leaks were discovered during excavation works last month and contributed to the pushing back of the road’s reopening date, yet again, to September 20.
The completion of the gas mains replacement marked a significant step forward in the wider Oxford Station improvement project, which was originally budgeted at £161 million but is now expected to cost at least £237 million.
The development prompted hopes that Botley Road, closed beneath the rail bridge since April 2023, could reopen earlier than planned.
However, Network Rail has moved to manage expectations, saying the project remains on course to meet its existing target date rather than finish ahead of schedule.
A Network Rail spokesperson said: “We’re pleased that SGN has completed its gas mains replacement work.
“While this is an important milestone, it doesn’t necessarily mean the overall project will finish early as some remaining work is dependent on access to the railway, which we have had to rearrange to enable the replacement of the gas main.
“Our focus remains on meeting our planned deadline of 20 September for reopening Botley Road to traffic.”
While the completion of the gas works removes one of the most recent obstacles facing the scheme, Network Rail says further work under the bridge and around the station is still needed before the route can reopen to traffic.
The club is currently struggling in the summer heat, and has launched a new fundraiser to keep its gymnasts safe.
The club, which is based at Grove House Barn near Warkworth in Banbury, launched the fundraiser so it could buy and install four air conditioning units to keep its space cool.
Currently, the club hopes to raise £7,000 through the appeal so it can buy four 10kW air conditioning units and cover all the installation costs.
So far, the club has raised £380.
Karl Wade, director of Wade Gymnastics, said the club has become “increasingly warm” during the summer months due to the rising temperatures.
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“Despite our best efforts to keep doorways and shutters open, it becomes very uncomfortable for gymnasts to play and train,” Mr Wade said.
He added: “The safety of our gymnasts and coaches is always our utmost priority.
“Unfortunately, the risk of having to close the business during these hot spells is increasing and we need to have more effective ways of keeping everyone cool.
“An air conditioning system would allow the business to stay open during those extreme hot conditions and continue to provide classes for everyone who attends.”
The gym currently delivers classes seven days a week for around 900 people, which range from toddlers to athletes competing at national level.
The gym club was founded more than four decades ago by Ruth Wade and, for the past 20 years it has been based at its current facility.
SOFIAH NICHOLE SALIVIO
News Editor
Solihull Council has appointed ICS.AI to deliver the first phase of an AI Transformation Discovery programme to examine how artificial intelligence could be used across several resident-facing services.
The 24-week programme will review opportunities in Adult Social Care, Children’s Services, Economy & Infrastructure, and Public Health. It is intended to help the council decide where AI could be used and where future spending should be directed.
In this first phase, ICS.AI will assess the council’s readiness for AI and identify use cases across the four service areas. The programme is expected to produce a prioritised shortlist of about 200 use cases, including 50 validated from a finance perspective, alongside a longer-term AI Transformation Roadmap.
The work is intended to create an evidence base before any wider implementation decisions are taken. Ethics, privacy, and safeguarding will be considered throughout the assessment process.
Discovery phase
ICS.AI will use its AI Target Operating Model framework to review Solihull’s current position across five dimensions before ranking opportunities. The outputs will be based on council-owned baseline data and reviewed by public sector specialists.
The approach reflects a broader pattern among local authorities exploring AI in service delivery while facing pressure to justify spending and manage risks around data use and public accountability. Councils have also been seeking clearer business cases before committing to larger technology programmes.
Solihull said the discovery exercise would support a measured approach to service modernisation. The authority wants to identify where AI could improve services for residents while also demonstrating value for money.
“We are committed to taking a well-considered and planned approach to modernising the services we provide. By building a strong evidence base for future decisions, this programme will help us understand where the greatest AI opportunities exist. We will then be able to prioritise those improvements that will deliver the greatest benefit for residents, while ensuring full value for the council,” said Councillor Dave Pinwell, Cabinet Portfolio Holder for Resources, Solihull Council.
Public sector focus
ICS.AI said the Solihull engagement builds on work it has carried out with more than 20 public sector organisations using its AI transformation and discovery assessments. Those organisations include Derby City Council.
The company focuses on AI projects for the public sector, where interest has increased as authorities look for ways to manage demand pressures in social care, public health, and other frontline services. At the same time, councils are under scrutiny to show that new technology investments are proportionate and supported by practical evidence.
Dwayne Johnson, Chief Local Government Officer at ICS.AI, said local authorities need stronger justification before committing funds. “Local authorities need confidence that every investment is backed by robust evidence and long-term value for residents. Solihull Council is taking the right approach by starting with a structured discovery programme that builds a clear understanding of priorities before decisions are made. By developing finance-validated business cases and a practical roadmap, the council can be more proactive in the decisions it makes,” he said.
The programme’s initial outputs are expected to give Solihull a ranked view of where AI could be applied across services, the level of organisational readiness, and which projects may warrant further consideration. This first phase is focused on identifying options rather than moving directly into deployment.
For local government leaders, that distinction is becoming increasingly important as councils test AI in areas that affect vulnerable residents and essential public services. In Solihull’s case, the work spans some of the authority’s most visible functions, including care services, children’s provision, public health activity, and parts of local infrastructure planning.
The council aims to use the findings to inform later investment decisions through finance-validated business cases and a practical roadmap for future priorities.
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