Lowly savings account proves small-biz hook

More often than not “altruism” and “commercial interest” intersect at some point on the line-graph of life to produce what could only be called a win-win.

Such is the case with the current promotional campaign for business savings accounts (BSAs) being run by Capital One Bank’s small business unit, called Spark Business.

Little bit extra

The promotion is straightforward enough, although more generous in some respects from those of competing institutions.

The campaign offers a 1.1% APY for 12 months for any new small business savings account opened in the month of October. A tiered cash incentive up to $1,000 is also offered for new Business Advantage Savings accounts, depending on the amount the account is opened with.

Business savings accounts are standard fare at most banks and Capital One’s APY, although at the higher end of what’s currently out there, isn’t unique. However, as pointed out by Johannes Endhardt, vice-president of marketing and analytics at Capital One Spark Business, many BSA promotional offers run only for six months or less, whereas Capital One’s is for a year.

More importantly, the BSA promotion is part of a larger mission for the six-year-old Spark Business unit. As Endhardt said in an interview with Banking Exchange, Spark was created to fill a gap in the small business market. Typically, he says, many banks offer relabeled consumer products to small business customers. Whereas larger businesses are handled by the banks’ commercial platforms. The idea behind Spark was to build a specific platform—and business focus—for the small business market. The bank defines that as companies with annual revenues up to $20 million.

The "sweet spot" of Spark Business customers, Endhardt notes, tends to be in the range of $1 to $5 million in revenues. 

Forgotten in the day-to-day crush

Business savings accounts are just one element of the Spark Business product set, which also includes a credit card, checking account, and a 401(k) product.

The bank chose to focus on the savings account based in part on research it conducted this summer, which found that less than half (42%) of small businesses have a business savings account, with most (68%) noting they have all their cash in a checking account.

“In the day-to-day focus on running the business,” says Endhardt, “financial management often comes up short” among small-business-owners’ priorities. “I often ask them, ‘Do you have a line item for savings?’ Many of them do not have that as part of their financial plan,” says Endhardt.

“We believe a business should have a savings account,” he says, and not just for the financial benefit of earning interest compared with a no-interest checking account. The bank points out that small businesses should have funds set aside to cover unforeseen circumstances. Examples that Endhardt mentions include tax bills and such things as natural disasters—“things that can put you in a cash-flow crunch.”

Another benefit to having a business savings account, according to Endhardt, is that it can double the company’s FDIC insurance coverage.

He explains: In addition to the $250,000 coverage an individual gets on a personal checking account, if that person also opens a business checking or savings account for a partnership or corporation (but not for a sole proprietorship) he would get an additional $250,000 coverage.

One part of a relationship

Endhardt doesn’t think the money brought in by the promotion will be “hot,” at least not all of it. After the 12 months are up, the rate drops to the bank’s standard Business Advantage Savings Account rate. Currently that rate is 0.2%, which Endhardt maintains is competitive.

“We can’t force people to keep money in the bank,” he says, “and some will shop it around.” He says the program was designed to help develop a relationship with customers. One aspect of relationship is to say to the small business: “You might want to think about setting up a savings account.” The promotional rate is an extra incentive to do that.

“Savings really matters,” says Endhardt. “It just gets overlooked.”