Having the right business bank account is crucial, but there area few key factors to consider when comparing your options.
Sole traders are not legally required to have a separate business bank account, but it’s highly recommended. Even though there may be additional costs, keeping your personal and business income/costs separate will make things much simpler when managing your finances, doing your accounts, claiming expenses and completing your tax returns.
Moreover, some banks won’t allow sole traders to use their personal bank account for business. By law, limited companies must have their own bank accounts, because the company and its director(s) are separate legal entities.
Whether you’re just starting out or your business is more established and you’re considering switching banks, here are five key things to consider when weighing up which business bank account is right for you.
1. Business bank account introductory offers
Many people who start up open a business current account at the bank where they have their personal current account. In many ways, it’s the natural thing to do, because it’s normally easier and quicker. But that doesn’t mean it’s the best option, because it could be more costly, while better benefits and services might be available elsewhere.
You should research the full range of business bank account options available. Comparison sites such as Uswitch, Money Super Market and others simplify this task. Find out what banks are offering. Some providers offer free day-to-day banking. Others offer charge-free periods lasting several months, followed by discounted charges or fees for a fixed period. Introductory deals are also offered to try to lure existing businesses away from their current banks.
2. Monthly business bank account fees and charges
A very important consideration. Once business bank account introductory periods are over, businesses may have to pay monthly bank account fees, although some providers do not charge monthly bank account fees for day-to-day banking, only for additional services.
Banks can charge monthly account fees, transaction fees, overdraft fees and charges for additional services (eg processing cheques and overseas transactions). Also find out if there are any limits on the number of transactions or cash deposits you can make without incurring extra charges. When comparing business bank accounts, be clear about what fees and charges you’ll pay.
3. Business savings account interest rates
Current business bank accounts offer 0% AER (Annual Equivalent Rate), so any money in your business current account will earn no interest. However, banks offer business savings accounts, where you can earn some interest, even on instant access savings accounts. A higher rate of interest is available on business savings accounts that require notice before withdrawal or fixed-duration deposits. Sometimes there are minimum deposit requirements before interest is payable.
Need to know! To open a business savings account, you’ll need a business current account to be able to move money into and out of your business savings account.
4. Business bank account key benefits
Business current accounts offer similar service features as personal current accounts and some will be more relevant to your business than others. Your business may or may not need an overdraft; you may or may not want a cheque book; you may or may not need to bank cash regularly.
Some business bank accounts give access to slightly cheaper bank loans or credit card rates, so find out. Also research the online banking platforms, mobile apps and other digital services that banks offer. They can save you time and enable you to better manage your cash flow. You might need to make frequent online payments to suppliers in the UK or overseas or receive payments in overseas currencies. If so, find out whether there are any charges.
5. Customer service and support
The level of service and support you require from your business bank account provider can be a key factor. Some businesses need very little support, just a reliable online banking-only solution will do. Other businesses need to make regular in-branch visits, for example, to deposit cash, get change, pay in cheques or seek advice. Think carefully about what support you’ll need, because finding the right bank and bank account can make a huge difference to the financial health and success of your business.