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How we picked theseBusiness savings accounts tend to offer much better interest rates than business accounts. So if your business has some surplus funds, it could make sense to move them into a business savings account, where your money can generate a better return.
Outside of the interest rate benefits, it’s also a prudent idea to have some savings set aside anyway, in case your business is hit by an unexpected situation, such as a downturn in trading or the need to make emergency repairs to your equipment.
No, not if it involves business finances. If you want to save a chunk of your business revenue then you’ll need to do it in a business savings account. It’s a similar situation to being legally required to have a business current account if you’re using banking services as a limited company, so that your personal and commercial funds are kept separate.
The only possible exception to this is if you operate as a sole trader or a freelancer. If your banking provider allows it, you could already be using your personal current account to make and receive business payments on a small scale. So you could in theory use a personal savings account to set aside and grow some of your earnings. (But as a sole trader, you can open a business savings account if you’d like to.)
Similar to personal savings accounts, there are a couple of different options when choosing which business savings account to open. These include:
You’ll need to do your research before selecting a business savings account, so here are some pointers to consider:
The Financial Services Compensation Scheme (FSCS) protects deposits of up to £85,000 that you have with any licensed banking provider. So if your business account is with a licensed UK bank, then it will be covered by the FSCS.
There will be tax payable on the interest earned by money in your business savings account, as this interest is usually paid gross (with no tax deducted) by your banking provider.
If you’re a sole trader the interest will form part of your income, and that will be subject to your personal tax allowance, which is used when calculating your annual self-assessment tax return.
Limited companies pay corporation tax, so any business savings interest will need to be included for tax purposes in your profit calculations.
If your business is in the fortunate position to have some surplus funds that can be held in reserve, it may be a good idea to place it in a business savings account. This is because these savings accounts tend to offer better interest rates than business current accounts.
Placing this cash in a business savings account can be a great place to allow your firm’s money to grow while being kept for any unforeseen costs.
If you’re confident that your firm won’t need the money in the near future, you may benefit from a placing the cash in a fixed-term notice account. These accounts offer a higher rate of interest, but you won’t be able to touch that money without incurring penalties during the fixed term.
Finally, the key thing to bear in mind with using a business savings account is that your business will most likely need to pay tax on any interest earned.
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