What Type of Business Bank Account Do I Need?

If you’re a small business owner, the U.S. Small Business Administration recommends opening a business bank account to manage your business expenses separately from personal finances as soon as you start accepting payments.¹ In fact, a business bank account is a legal requirement for some types of organizations, including LLCs, corporations and businesses operating with a DBA name.

Setting up the right type of account is something business owners should carefully consider. In order to choose the best business bank account(s) for your needs, it’s a good idea to learn more about what they do and what to look for. Learn more about different business bank accounts and other types of financial management accounts with our guide.

If You Want To Build Business Credit…

Open a Business Checking Account

Businesses that want to build their business credit profile should open a business bank account. Responsible business credit behavior includes making on-time payments to vendors, suppliers and other companies with whom you regularly do business. These third-party companies may then send your business’s historical payment information to business credit bureaus, which can be used to build your business credit history.

This type of account is also necessary if you want to issue payments directly from your business or accept payments from clients in your company name. Similar to a personal checking account, you can also write checks and accept checks as payment with a business checking account. Many banks will also issue a business debit card for you to make purchases directly from your account. This type of account is typically required if you want to pursue small business financing.

A business checking account can be a safe place to store and access business funds. The FDIC insures business bank deposits for many types of businesses, including money stored in FDIC-approved business checking accounts.

Keep in mind that there may be some financial requirements and fees associated with a business bank account. Some of these may include:

Transaction limit fees: Depending on the bank, this type of account may have fees associated with transactions exceeding a monthly, weekly or daily free transaction limit.

Deposit fees: Similar to transaction limits, business banks may charge a fee for deposits exceeding a monthly, weekly or daily deposit limit.

Maintenance fees: This fee may apply to business bank accounts with a balance under a certain daily or monthly threshold.

If You Want a Better Return on Saved Capital…

Open a Business Savings Account

While interest rates can vary by financial institution, a business savings account typically offers a higher return than a business checking account. Opening and storing excess funds in a business savings account is also a good step for businesses that wish to apply for a business loan later down the line, as it can help promote financial responsibility with proper usage. A business savings account also provides a safe place to store and access liquid funds, unlike other types of investments that may not be FDIC-insured.

In addition to the types of fees associated with a business checking account, a business savings account may be subject to the following:

Withdrawal fees: Business banks may charge a fee for savings account withdrawals over a set monthly limit.

Minimum opening deposit: Banks may apply a fee for accounts with a low balance upon the statement opening date.

If You Have a Large Sum of Cash to Deposit… 

Open a Cash Management Account

A cash management account is a unique type of bank account offered by online banks. These types of accounts are designed for those with larger cash deposit needs, as they may be able to insure a higher sum of money through the FDIC, depending on the specific online bank. Typically, this happens by splitting up large deposits into separate FDIC-insured banks. Cash management accounts can also offer higher interest rates than a typical business checking account. However, online banks that offer this type of account may also require users to make a larger initial deposit and/or maintain a higher monthly account balance.

In general, cash management accounts are supplemental to other types of business bank accounts. Businesses using these types of accounts may also need other services not offered from an online bank, such as a local bank for check payments, cash handling and other financial amenities typically included with a traditional business bank account. Fees for cash management accounts differ by bank, but many offer fee-free accounts for qualified users.

If You Want To Accept Credit Card and Debit Card Payments…

Open a Merchant Services Account

A merchant services account allows your business to accept credit card and debit card payments from your customers. This type of business account is also typically used in tandem with other types of business bank accounts, including a business checking account and business savings account. Depending on the specific agreement, merchant services accounts may allow businesses to quickly transfer funds from a merchant services account to a business checking or business savings account.

Like other types of business accounts, a merchant services account is subject to fees and usage costs, which may include:

Transaction fees: This type of fee is generally applied to each credit or debit card payment you receive.

Batch fees: Merchant processors may apply a batch fee when payments are settled and/or deposited into your business bank account at the end of each business day.

Minimum transaction fees: Merchant processors may apply a fee to your account if you don’t meet a minimum transaction threshold.

References

¹U.S. Small Business Administration (n.d.) Open a Business Bank Account.

The information in this article is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.