Idle cash, hidden costs: Why SMEs should put their cash to work
Small to medium-sized enterprises (SMEs) in the UK hold billions of pounds in idle cash, often earning negligible returns.[1] By recent standard we are in a relatively high interest-rate environment, so this can be considered wasteful.
For firms operating on tight margins, the opportunity cost of leaving money dormant is substantial. Furthermore, a disciplined treasury structure can mitigate fraud risk as well as generate a return. Delivering security and income together is mutually beneficial.
Most deposits held by UK SMEs sit in current accounts rather than deposit accounts.[2] That amount has grown from £64 billion in January 2013 to £124 billion in December 2024.[3] There can, of course, be good reasons for this.
Cash in current accounts is readily accessible and can be deployed quickly when needed. Business owners are swamped with priorities and cash management can fall down the list. However, setting up a proper structure reduces risk while delivering financial value directly to the bottom line.
Most business current accounts do not pay interest. With inflation running around 2.8%, cash in low interest accounts is being eroded. Having a treasury strategy puts it to work. Some 47% of SMEs report cash flow challenges, while 51% say insufficient time for financial management is holding back their business.[4] A relationship-led bank can do the heavy lifting for business owners and decision makers, presenting a remunerative and secure treasury structure.
To achieve this, the cashflow of the business must be considered. Every business has different needs. Analysing bank statements, alongside contextual knowledge developed through conversations with management, enable a banking team to create a suitable solution.
Why treasury should be considered
Treasury management is often perceived as the preserve of large corporates. However, it is essential for SMEs seeking resilience and growth to do the same. A structured treasury approach delivers three critical benefits:
- Accurate cash forecasting, which can reduce the risk of liquidity crises.
- Optimised working capital, which can lower borrowing costs and frees funds for investment
- Improved creditworthiness, which can enhance access to financing on favourable terms.
Fixed-term and notice accounts: The untapped advantage
A simple step towards better treasury management is to make surplus cash work harder. Business savings products can offer close to the Bank of England’s base rate (currently 3.75%), compared with near-zero on current accounts.
- Fixed-term accounts guarantee returns for funds not needed immediately. They suit SMEs with predictable cash cycles and provide certainty in volatile markets.
- Notice accounts offer flexibility with higher yields than instant access. For firms able to plan 30 to 90 days ahead, these accounts strike a balance between liquidity and return.
The arithmetic is compelling. An SME with £2 million in surplus cash, earning 0.5% interest, will generate £10,000 annually. Placed in a one-year fixed term account earning 4.00%, the same sum earns £80,000* – a difference that could fund a new hire or offset rising input costs.
*Figures are for illustrative purposes only and assume representative interest rates; actual returns may differ.
Illustrative treasury ladder
To further illustrate the concept, consider a Midlands-based SME with £1.5 million surplus cash that wants to optimise returns, while maintaining liquidity for operational needs.
Strategy:
Divide the funds into three tiers for liquidity, flexibility and yield:
1. Liquidity tier (immediate access)
- £250,000 in an Instant Access Account at 1.00%
- Annual interest: £2,500
- Purpose: emergency buffer and day-to-day needs
2. Flexibility tier (short-term)
- £500,000 split equally across a 90 Day (2.80%) and 120 Day (3.15%) Notice Accounts
- Weighted average return: 2.98%
- Annual interest: £14,875
- Purpose: Seasonal working capital and planned expenses.
3. Yield Tier (Long-Term)
- £750,000 laddered equally across 6month (4.00%), 1 year (4.00%) and 2year (4.05%) Fixed-Term Deposit Accounts
- Weighted average return: 4.02%
- Annual interest: £30,125
- Purpose: Strategic reserve for growth projects.
Total expected annual interest:
≈ £47,500 versus £15,000 if left in a 1% current account.
Gain: +£32,500 (a 217% improvement).
The cost of doing nothing
The cost of inertia is not limited to foregone interest. Idle cash erodes in real terms when inflation outpaces deposit rates. UK inflation is currently at 2.8%, intensifying the loss of purchasing power. These risks compound over time A firm that overlooks treasury discipline may inadvertently place itself at a competitive disadvantage, while those who optimise liquidity enjoy lower financing costs and greater strategic flexibility.
By structuring cash intelligently across liquidity tiers, businesses can turn idle funds into a source of strength rather than vulnerability. In an environment of economic uncertainty and rising costs, adopting a disciplined approach to liquidity becoming increasingly important, it is a cornerstone of sustainable growth.
The conversation about treasury should start early, be informed by data, and remain dynamic as conditions change.
How Weatherbys Business Bank supports UK SMEs
At Weatherbys Business Bank, we recognise that treasury management is not just about rates – it is about relationships. Our relationship-led approach means we take the time to understand your business, its cash flow dynamics and its strategic ambitions.
This wider knowledge allows us to create a robust and constructive dialogue, ensuring that liquidity solutions, whether through notice accounts, fixed-term deposits, or tailored strategies, are aligned with your goals. By combining market-leading service with deep client insight, we help SMEs turn idle cash into a strategic asset, supporting resilience and growth.
What you need to know
This article is for general information only and does not constitute financial advice. The suitability of any treasury strategy will depend on individual business circumstances. Businesses should consider their specific liquidity needs and may benefit from discussing these with their banking partner.
Fixed-term and notice accounts may restrict access to funds. Withdrawals may be subject to notice periods or may result in penalties or loss of interest.
[1] UK Finance, ‘Competition & Markets Authority (CMA) – Review of the SME Banking Undertakings 2002’, https://assets.publishing.service.gov.uk/media/689b3ee1eb300a86d83d0c2a/UK_Finance.pdf.
[2] Allica Bank, ‘The Great British Savings Squeeze: A report into the state of the SME business savings market’, <https://www.allica.bank/hubfs/pdf/Allica_Bank-Great_British_Savings_Squeeze.pdf>.
[3] UK Finance, ‘Competition & Markets Authority (CMA) – Review of the SME Banking Undertakings 2002’.
[4] Intuit Quickbooks, ‘New survey: 57% of UK small businesses predict rising costs over next 3 months’, https://quickbooks.intuit.com/uk/blog/sme-insights-june-2025/.