Business savings accounts
Is your UK business looking for a savings account? We explore the benefits of opening one and what you should consider before you do.
A business savings account is a bank account where businesses can deposit funds that they would like to put to one side to save, or they might want to grow by gaining interest. These accounts are available to all types of businesses, although there are different savings account options to choose from.
What's in this guide?
- Why should I use a business savings account?
- Can I use a personal savings account instead?
- What types of business savings accounts are available?
- How to choose a business savings account
- Are business savings accounts covered by the FSCS?
- Tax on business savings accounts
- Pros and cons of business savings accounts
Why should I use a business savings account?
Business savings accounts tend to offer much better interest rates than business current 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.
Can I use a personal savings account instead?
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.)
What types of business savings accounts are available?
Similar to personal savings accounts, there are a couple of different options when choosing which business savings account to open. These include:
- Easy access. These accounts tend to offer the least competitive interest rates in exchange for being able to instantly access funds if you need to withdraw them.
- Notice accounts. You’ll have limited access to this account and will need to provide a set amount of notice (potentially a couple of months) if you need to make a withdrawal.
- Fixed term. This type of account usually offers the best interest rate but you’ll need to keep your funds locked in for the duration of the fixed term.
How to choose a business savings account
You’ll need to do your research before selecting a business savings account, so here are some pointers to consider:
- Access. Do you need to have instant access to your savings or are you happy to leave them untouched in an account for a long period of time? This will influence whether you go for an easy access, notice or fixed term account.
- Interest rate. Obviously an important factor if you’re looking for a return on your savings. Check out which provider is offering the best rates – but remember the type of account you choose (e.g. easy access vs fixed term) will also influence how competitive the rate is.
- Bonuses. Some accounts will have introductory offers when opening a new account, or bonuses for leaving your money in the account for an extended period of time. Remember, you might have to keep an eye on when bonus offers end and switch to a better account.
- Minimum balance. There’s usually a minimum balance required to open and then maintain an account, which you are not allowed to fall below. Make sure you’re confident you can meet this savings threshold.
- Your type of business. Although business savings accounts in general are available to all types of businesses, there might be specific account products on offer for sole traders, limited companies or certain sectors, such as charities.
Are business savings accounts covered by the FSCS?
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.
Tax on business savings accounts
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.
Pros and cons of business savings accounts
- If you’re a limited company you’ll need to open one if you want to save some of your business revenue into a bank account.
- You can get a return on your money with better interest rates than a business current account.
- There’s a range of accounts to choose from varying from easy access to fixed term.
- You can set money aside for any unexpected event affecting your business.
- You’ll need to pay tax on any interest.
- If you choose a fixed term account but unexpectedly have to withdraw the money then you’ll face a penalty fee.
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