One aspect that many entrepreneurs overlook is determining what type of bank account to open for their business. In other words, checking vs savings account: which one should you choose?
Checking and savings accounts each have pros and cons and serve different purposes. While businesses should typically have both, it’s important to understand the differences between these types of bank accounts and how they can benefit your small business.
Let’s take a look at checking vs savings accounts, the pros and cons of each, and why you need both for your small business.
Checking vs Savings Account at a Glance
Here’s an overview of the main differences between checking and savings accounts:
|Checking Accounts||Savings Accounts|
|Main Uses||Daily spending||Long-term saving|
|Withdrawal Limits||None||6 per month|
|Interest Earned (APY)||0%||0.15% – 2.5%|
|Monthly Fees||$0 (Depending on Bank)||$0 (Depending on Bank)|
|Other Fees||Overdraft, ATM, Minimum Balance, Maintenance, and More||Usually, no additional fees|
|Deposit Requirements||$0 – $100 (Depending on Bank)||$0 – $25,000 (Depending on Bank)|
|Other Features||Online Deposits, Checks, ATM Fee Reimbursement, FDIC Insurance, Online & Mobile Banking||Online Deposits, FDIC Insurance, Online & Mobile Banking|
Checking vs Savings Account: What’s the Difference?
Ultimately, the primary difference between checking and savings accounts comes down to what you plan to do with your money.
Checking accounts are typically considered transactional accounts. This means that you plan to make frequent deposits and withdrawals. Checking accounts allow you to easily access and spend your money as you see fit via debit cards, ATMs, and mobile payment apps.
Savings accounts, on the other hand, are typically meant for long-term investments. Savings accounts make it harder to spend money in the account by limiting the number of transfers you can make per month. However, unlike most checking accounts, savings accounts allow you to earn interest on your money over time.
In general, checking accounts are better for everyday transactions, while savings accounts are designed for storing money and accumulating interest.
Checking vs Savings Account: Which is Better?
After comparing a checking vs savings account, which one is the better option for your small business?
Both types of accounts have their fair share of pros and cons. Reviewing these pros and cons is a great way to determine how checking and savings accounts can benefit your small business.
Checking accounts are great for daily spending as they provide easy access to your funds as you need them.
- Easy access
- Debit Cards
- Online & mobile banking
- More fees
- Usually, don’t pay interest
While checking accounts offer convenience and accessibility, they typically have more fees than savings accounts and don’t pay interest to account holders.
Keep Reading Best Business Checking Accounts
On the other hand, Savings accounts are perfect for long-term savings due to generous APYs and low fees.
- High-interest rates
- Few fees
- Online and mobile banking
- Transfer and withdrawal limits
- Less convenient for spending
While savings accounts don’t allow you to easily access and spend your money, they are great for storing money as generous interest rates help you build up your savings over time.
Keep Reading Why Should You Have a Business Savings Account
Why You Should Have Both
So, which type of bank accounts is better for small businesses?
Ultimately, you should probably have both.
Business checking accounts offer an incredibly convenient way to pay for your daily business expenses. This could include anything from supplies to company meals or any other business-related expenses.
Alternatively, business savings accounts provide a great place to store money generated by your business so that you can earn interest on your business profits. This can be a great way to save up money for your next big business venture.
Moreover, having both a business checking and savings accounts makes it easier to:
- Maintain accounting records
- File small business taxes
- Get approved for a small business loan
- Separate your business finances from your personal finances
- Build your business credit score
Additionally, if you are worried about the hassle of maintaining two business bank accounts, mobile and online banking makes it incredibly easy to manage a checking and savings account.
If you are serious about properly managing your small business finances, be sure to consider opening both a checking and savings account.
Here are a few extra tips to help you maintain a checking and savings account for your small business.
1. Open Both Accounts at the Same Bank
You should be sure to open both of your accounts at the same bank. This will make them much easier to manage as you will be able to access both accounts through your bank’s website and mobile app.
By opening both accounts at the same bank, you will be able to easily check balances, manage both accounts, and make transfers between accounts.
2. Open Both Accounts Online
Nowadays, you don’t have to go to a bank in-person to open or manage your accounts. Instead, you can and should open both of your accounts online.
Opening your bank accounts online is much easier and faster than doing so in-person and will help you familiarize yourself with online banking.
3. Have Different Bank Accounts for Your Business and Personal Finances
Using the same account for both business and personal purposes is known as commingling and is a practice you should avoid at all costs.
Be sure to open separate checking and savings accounts for your business and personal finances.
Having separate accounts for your business will make it easier to manage your finances, help build your business credit score, and make it much easier to file taxes at the end of the year.
This is particularly important if you are planning to apply for a small business loan. Your lender will need to review your business finances to approve your application, which is much easier if your business bank account is separate from your personal bank account.
One Unexpected Benefit of Bank Accounts
From making it easier to manage your finances to simplifying your taxes, checking accounts and savings accounts offer many great benefits for small businesses.
One great benefit you might not have known about is that business bank accounts make it easier to apply for small business loans.
At Camino Financial, we want to see you succeed. We offer small business loans with friendly terms to help small business owners like you pursue new business initiatives and build their road to success.