Comparing small business bank accounts

Your guide to comparing small business bank accounts

Your business needs the right financial plan for the best chance of success.

Setting up or maintaining a business is no easy task. A business bank account helps you plan your finance, determining your business structure and financing your business to suit its cash flow. Find the right account to help you keep track of your expenses and provide flexible banking.

A business savings account has many of the same features as your personal high interest savings account, but the way you use a business savings account is what sets it apart. Responsibility and accountability is more important with a business savings account because you have clients, staff and investors to consider. So it’s not only important how much you earn, but how you look after those funds.

Read about business savings accounts and how to find the best account for your needs.

What is a business bank account?

This is an account from a bank or financial institution for businesses to easily and securely access money. Managing legal, tax and everyday cash flow requires a business account and shows that you’re serious about keeping your company’s finances under control.

Types of business accounts

  • Business transaction account

    This allows businesses to deposit and withdraw cash through ATM cards, electronic debit cards and checks. Some of these accounts may require a minimum deposit and others will require proof of business and identification. Banks have many different types of transactional account, some with transaction limits and some without.

  • Business savings account

    A savings account is an option if you want your business to accrue interest. It provides the business with return by saving and managing the business’ liquid assets. Savings accounts are not linked with check books and debit cards so it’s more difficult to access the funds. Some business savings accounts will require a minimum deposit.

  • Business term deposit

    A term deposit is a fixed amount of money deposited at a financial institution for a fixed amount of time for a fixed amount of interest. Businesses can use term deposits by depositing part of their assets for a period of time for a guaranteed return.

Opening a business bank account

How you open a business account depends on the type of business you have and how you plan on using the account. Some accounts allow you to apply online, while others require you to apply in person and provide details about your business.

 

Dealing with business finances is different than managing your personal savings accounts as you’re now accountable for a lot more money and people. Not only will the investment choices and savings plans affect the person signing the checks, but other staff members, managers, customers and maybe even shareholders.

Things to consider before you open a business savings account:

  • Determine why your business needs a savings account and its savings goals.
  • Determine if the business needs another income stream or more financial stability.
  • How will the business savings account be accessed and by whom?

  

How does a business account work?

Depending on the bank you choose, there are a number of different business accounts. They’re designed to keep funds safe while the business makes transactions. It’s important to compare bank accounts to see what works for your business. Business bank accounts are designed as a place to keep the funds safe while transactions are being conducted.

Most transactional business accounts will issue a debit card, allowing ATM withdrawals. Most have online resources in addition to phone and in-branch banking services. It’s always recommended to keep business and personal expenses separate for tax purposes.

Whether you’re investing or opening a new account, it will always be beneficial to find the best deal. And you have choices — loan accounts with low interest rates and fees or savings accounts with a high interest rate and low fees.

Here are some things to consider when looking for a business bank account:

  • Fees. Consider monthly service fees and transaction maximums by comparing the spending habits of your business.
  • Interest. Choose an account that has a competitive interest rate for the amount of money you have in the account.
  • Features. There are a lot of features that banks offer including a line of credit to maintain cash flow as well as online banking.
  • Accessibility. It’s standard for a business account to have business online banking, bill pay and direct deposit. Find out how else you can access your account.
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Comparing business bank accounts

It’s important to compare the difference between business savings accounts such as interest rates, offers and inclusions. Look at the cash flow of your business and how often you make transactions.

  • Determine how you’ll use your business account. This will help you determine the features you need to compare options. If you want an account for investment savings for profits you deposit in one lump sum, then you’ll need a high interest rate savings. However for regular deposits and cash flow for everyday use, you’ll need an account with easy access.
  • Keep the size of your business in mind. Some business savings accounts require a minimum balance to open the account, or may be able to be used fee free if a certain balance is maintained. Other accounts will offer high interest-only if the account balance is above a certain minimum amount, so choose the account with minimum balance requirements which suit your turnover.
  • Determine what functions you need. Some banks focus on start-ups and small businesses, others offer features that help big businesses manage their finances. Shop around and get familiar with what different banks have to offer.
  • Know the type of business you really are. Consider the type of business you are and how it’s run. Do you invest most of the profits back into the business by investing in assets and people, or do you have big business big balances which need a safe resting place? Even a small online business can turn over a million dollars a year. So look at your overall value, what your overhead will be and how much you intent to profit before you decide on a bank.
  • Start with your current bank. Not all high interest savings account offers are advertised. Sometimes you just need to ask. If you already have a relationship with your bank, talk a with a representative and see what they have to offer. Sometimes banks offer loyalty programs if you’ve been banking with them for a certain amount of time.
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What are the features of a high interest savings account for your business?

If you think your business could benefit from a savings account, consider the following:

  • A high compounding interest rate. The interest rates offered on high interest business savings accounts are often two to three percent above the official interest rate. This means you can have a high interest rate calculated on your savings every day. Compounding interest is beneficial to you because you’re basically earning interest on interest you’ve already earned.
  • Financial stability. The ability to transfer your business funds to a high interest savings account gives you stability of an increasing savings account balance. This shows investors or lenders you business’s stability, making it easier to get a loan and protects your cashflow.
  • Plan for the future. Making regular deposits into a savings account builds financial strength for your business. As your business grows and your goals change, you’ll have money to invest in the future.
  • Regular business statements. In order to regularly review your business’s financial situation allows you to assess its success or failures. Reviewing monthly statements will also keep those with financial interest in your business — board members, shareholders or directors —in the loop.
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What are the pros and cons of a business bank account?

Pros

  • Having a central place for funds. When you run a business there are so many facets you need to be in control of that you want to make your business finances as simple as possible. This simplicity can be achieved when you have just one savings account to manage with your business funds. This means just one branch, one set of online log in details and one statement to review and file each month. These bank accounts come with good accessibility features, which can help the business function more efficiently.
  • A separation from your personal funds. No matter how big or small your business is, there often comes a time when the line between business and personal funds becomes blurred — there’s a bill to be paid, a contractor who wants their money and you’re tempted to use your personal funds to tide you over. However, without a separate place for your business funds you’re jeopardizing financial stability. Transfers to and from your personal account don’t look good to your accountant and mean you can’t manage your business with the funds available from the income you’re bringing in. Therefore, when you make a clear distinction between your personal and business funds you maintain a strong financial outlook.
  • Professionalism for customers. A business bank account can help establish the business’ credibility with customers and creditors. When you’re able to provide business bank account details to your customers for payment, you portray a professional image.
  • Easy accountability.  With your business and personal funds separate and your business savings all in one place, it makes for easy accountability at tax time when you need to report the income from your savings interest earnings. You can also easily report to your board or shareholders with all of the business savings in one place.

Cons

  • Fees. Banks can charge for not maintaining a minimum balance and for exceeding a certain number of transactions.
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How do I determine my business savings needs?

  • Is your business just starting out? If your business is new, you’re going to need an account to transfer your funds to. It will also show financial strength as your business grows.
  • Is your business a charity or not-for-profit organization? If you’re looking for a business account for a charity or a nonprofit organization, then you may be able to negotiate a lower fee structure, or no-fee business savings account. This is important as fees eat away at your hard earned funds over time.
  • Does your business need a profitable place for its profits? A business savings account can help your profits continue to grow while your business continues earning and operating. A designated savings account allows the business to review their goals and plans for the future and decide the best way to spend their profits, or whether to reinvest.
  • What’s the size of your business? Business savings accounts may require a minimum balance to earn a higher interest rate, or may be able to be operated fee free if a minimum balance is maintained.
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How do I use a business savings account?

  • Your high interest savings account is there to grow and strengthen your business and this is why many accounts are primarily held online. When your business savings account is online it’s more difficult to access your funds. Instead, all transfers are made online, making it harder to withdraw from your account.
  • Setting up a linked transaction account is usually part of the application, and doesn’t always need to be from the same bank. If the linked account is with the same provider, then transfers will be instant. However, transferring between different banks can take up to three days.
  • If you’re using your business savings account as a high interest investment, this is a good way to diversify your business investments. A cash investment is safe, secure and easy to manage, access and use. However, there are higher yield options available such as term deposits or shares. So while cash investments can be an important aspect of your business investments, don’t put all of your funds in one basket.
  • You can also use your business savings account as an emergency fund to avoid using high interest credit cards when cash flow is slow. Just as is suggested for a personal emergency fund, aim to save at least six months worth of expenses. This means you’ll be able to pay its bills and staff and keep running for six months if your business runs into financial trouble.
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Business bank accounts for Small businessesBusiness bank accounts for small businesses

Small businesses come in many varieties and each one has a unique set of circumstances that govern the way it’s managed. A café might have a regular level of income throughout the year, employ a dozen staff and deal with only four or five suppliers; A florist might be a family business that employs no staff, buys all its stock at the wholesale flower market and has high peaks of income on Mothers Day and Valentines Day; A business consultant might receive a check every few months when a project finishes, then have no more income until the next project ends.

These are a couple of examples of small businesses with very different patterns of income, therefore require quite different banking practices. Of the many banking options available, the three most common are transaction, savings and term deposit accounts.

  • Business transaction accounts. For day-to-day transactions, offering more transactions than savings and term deposit accounts. But that means that they don’t pay interest on any surplus funds.
  • Business savings. Help your money earn interest, and is more difficult to access. Your business could benefit from a savings account for a number of reasons: better financial stability, future expenses or plans for growth.
  • Business term deposit. Designed for investing surplus funds that aren’t required for the business for a certain amount of time and generally have a higher interest rate than a savings account. A small business might use a term deposit account as a place to keep money for annual bills like taxes or insurance, or for future development projects.
Tax essentials you should know about your business savings account

 

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Things to avoid with business bank accounts

  • Fees. This is one of the most common problems with business accounts. Be sure to read the terms and conditions, Product Disclosure Statement and conditions of use concerning your account in order to avoid any surprises.
  • Not getting legal advice with joint accounts. If there are more than one account owner, it’s recommended that legal advice is given to make the rules and purposes of the accounts clear.

Frequently asked questions

A savings account is a sound investment option, but before you open a business savings account you need to be clear about what you need the account to be able to do, and why you are choosing a savings account over another business investment option.

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