Interest rates have now settled at levels many business owners and investors have not seen for over a decade. Even if the Bank of England begins to trim the base rate later this year, most commentators expect the cost of borrowing to remain well above the ultra-low rates of the past. That means every small business and higher-income individual should be thinking carefully about both sides of their balance sheet; the money they owe and the money they hold.
On the borrowing side, many companies and households are now facing the end of fixed-rate loans or mortgages arranged several years ago. Replacing these loans can mean a noticeable jump in interest costs, reducing cash flow and profitability. For directors, this might also affect drawings and dividends. Reviewing finance arrangements before they renew is therefore essential. Options may include refinancing with a longer-term fixed rate, negotiating flexible repayment terms, or repaying part of a loan where surplus cash is available.
On the savings side, higher rates are opening new opportunities. It is no longer sensible for business current accounts to hold large sums earning little or no return. Moving surplus funds into notice or fixed-term deposits can make a real difference, especially when supported by accurate cash flow forecasts. Individuals with significant personal savings should also ensure they are using tax-efficient wrappers such as ISAs or pensions where possible.
For limited companies, the use of directors’ pension contributions remains one of the most effective ways to take advantage of higher deposit returns while achieving corporation tax relief.
In short, higher interest rates are a mixed blessing. Borrowers face higher costs, while savers can finally earn a return worth having. A review with us will help identify how best to balance these two effects, manage debt prudently, and make cash work harder for both business and personal wealth.