If you’re currently using a checking account for your small business, you may want to also consider a business savings account. While the checking account is good for everyday cash needs, a business savings account has advantages that a checking account can’t offer.
Why Should You Open a Business Savings Account?
While it may seem strange at first, it makes good sense to have both business checking and business savings accounts. Why would you want both? Because both account types have advantages and disadvantages. To receive all the benefits, you have to have both account types.
Benefits of a Business Savings Account
If you decide to open a business savings account, you can expect some or all of the following perks:
- A business savings account is a good way to build an emergency fund. If your store is damaged by a natural disaster, or if you don’t have enough money to meet payroll one month, a savings account could act as a reserve account.
- A business savings account typically earns more interest than a business checking account. It’s the same situation with personal accounts.
- It’s also possible to save for taxes or retirement by regularly depositing funds into a business savings account. Until you withdraw your deposits, you’ll be earning interest, too.
For more reasons why you should consider opening a business savings account, be sure to read our other article Why You Should Have a Business Savings Account.
Business Accounts Should Be Kept Separate from Personal Accounts
Remember not to comingle your business funds with your personal funds. This rule applies both to assets and expenses. Money in a business savings account should only be used to meet business expenses. Likewise, funds received from a customer should not be used to meet personal expenses. Comingling could also lead to problems when it comes time to prove tax deductions on business expenses, apply for a business loan, or go through an IRS audit.
Types of Business Savings Accounts
Business savings accounts come in different varieties. It’s certainly possible to have a combination of accounts in order to capture all of the benefits they have to offer. The most common types include:
Traditional business savings account
This is your standard savings account. Its primary weakness is that it doesn’t quite measure up to the other account types when it comes to interest rates.
For example, Chase Bank’s traditional business savings account currently has an APY (annual percentage yield) of just 0.04%. That’s pretty low compared to rates available nowadays on the following account type:
Online high-yield savings account
This one is still a business savings account. But by reducing overhead, it can offer a higher interest rate. For example, Capital One offers a high-yield savings account that pays 1.85% for the first 12 months. That’s more than 40 times the rate on the Chase Bank account.
And despite the online nature of Capital One’s business savings account, the bank does offer a free ATM card with the account. Using the card at any Capital One cash machine is free. While the account has a $3 monthly fee, it can be avoided by keeping a balance of $300 or more.
Certificates of Deposit
You might be able to find an even higher APY with a business CD. This is a time deposit that must be maintained for a minimum amount of time. Most banks will grant you early access to the funds for a fee, though.
Typical terms range from 1 month to 10 years. The longer you keep your money locked up, the higher interest rate you will earn. A 3-year business CD with TIAA Bank currently yields 2.00%. While this is higher than Capital One’s business savings account, there is a tradeoff: a minimum deposit of $1,500 is required to open the CD.
Money market deposit account
Last, but not least, is the business money market deposit account. This is a hybrid savings-checking account. It pays interest similar to a savings account but offers checkwriting, too.
What to Look for in a Business Savings Account
Different business savings accounts can and will have different policies on a range of issues. Be sure you’re aware of these topics before opening an account:
- Debit card. Some savings accounts come with debit cards, while others do not. If you think you’ll need a debit or ATM card with your savings account, be sure it comes with one before submitting an application.
- Minimum opening deposit requirement. There’s often a requirement to make an initial deposit of funds, and the exact amount can vary quite a bit from one bank to the next. The Capital One business savings account mentioned earlier requires $250 to open, while Wells Fargo requires just $25 for its account.
- Fees for deposited items. Some banks will charge fees for making deposits. The Chase Bank account cited earlier permits either 15 or 30 deposits per month, depending on the exact setup, but then charges fees for deposits above that level.
- Monthly service charge. Some accounts may have a monthly fee, although there usually is a way to eliminate it. Live Oak Bank’s business savings account has no monthly fee.
- Benefits for linking a business checking account. Some banks will also have business checking accounts and may offer perks or reduce fees for linking a checking with a savings account. Bank of America does this, for example.
Other policies will be standard across all U.S.-based savings accounts. Nevertheless, you may want to verify the following policies:
- FDIC insurance. Most U.S. banks will offer FDIC insurance up to $250,000 per customer.
- Limit of six debits per statement cycle. Savings accounts, both individual and business, are only permitted six withdrawals per month.
Open Your Business Savings Account Today
A savings account can aid any small business in multiple ways. It can build a safety net and earn a higher rate of interest. It helps to keep business expenses separate from personal expenses. Some accounts will offer a debit card, which creates a useful cash management feature. And the money market account provides checkwriting.
To find the right account for your business, keep reading: