What Is a Business Savings Account?

Read on to find out more.

Updated: January 28, 2024
Matt Crabtree

Written By

Matt Crabtree

|
Jason Mountford

Edited By

Jason Mountford

 

In the modern economy, businesses face a myriad of financial challenges, from unpredictable revenue streams to unexpected expenses. This can make it difficult to build company reserves and create a strong financial foundation for the future.

However, with the right business savings account, businesses can achieve financial stability and take advantage of opportunities for growth.

Whether you own a new business or an established enterprise and are looking to expand, a business savings account can be paramount in achieving your financial goals.

By providing a safe and secure place to store your money, you can help combat the effects of inflation and market fluctuations, and provide you with access to the funds when you need them most!

But with so many different business savings accounts available, how do you know which one is right for your business? Join us today as we aim to answer any questions you may have about easy access savings accounts for your business.

What Is a Business Savings Account?

Put simply, business savings accounts are a type of bank account that lets businesses save money and earn interest on any savings.

Although this sounds fairly similar to a personal savings account, there's a range of additional features that are tailored to meet the needs of businesses specifically.

Not only does this kind of account typically have a higher interest rate than a regular business transaction account, they also come with a bunch of extra benefits (depending on who you partner with). This includes stuff like online banking, overdraft protection, and account management tools.

How Does a Business Savings Account Work?

Before you think about opening one of these accounts, you'll first need to provide some documentation that proves you're authorised to act on behalf of the business. This means submitting extra information like tax ID number, business licence, and proof of address.

After you've got your account up and running, it's time to deposit some cash. Banks will generally have a range of accounts with different interest rates and features, with the balance of the account also a factor in which types are available to you.

Keep in mind too that while you can withdraw money at any point, some banks may inflict penalties if you exceed a certain number of withdrawals per month.

Types of Businesses That May Benefit From a Business Savings Account

While every kind of business can get some utility out of a business savings account, is there any sector or size of business that may benefit the most?

Let's take a look at a few different examples to see how they're impacted:

Small Businesses

Small businesses can greatly benefit from having a business savings account, as they're normally looking to build up cash reserves and earn interest on savings.

Since small businesses are more vulnerable to cash flow fluctuations, having a dedicated savings account can provide a cushion during lean times. Additionally, it makes it easier to track business expenses and separate them from the day to day transactions of the business.

Seasonal Businesses

Any kind of business that makes most of their money in one, hectic, period of the year can also benefit from these accounts. Think businesses in sectors like the tourism or retail industry — they can use these accounts to save money during the season they're most busy, and then transferring it back to the business current account as they need it.

This helps ensure that the business has enough funds to cover expenses during the off-season or any unexpected downturns.

Startups

Anyone who's tried to set up a startup business before knows they often require significant capital to get off the ground. Fortunately, business savings accounts let them save money to fund future investments or even to mitigate the costs of anything unexpected.

Not only this, but it also means you can build credit and establish a relationship with a financial institution, which may be useful in securing loans or other financing further down the line.

Nonprofits

Non-profit organisations are always in need of cash. Whether it's for a future project or just to maintain a reliable cash reserve, one of these savings accounts can be a huge help in making ends meet. Generally speaking, they can also be the difference between staying open and having to close down, as periods without substantial donations can be offset by your savings.

In addition, creating a dedicated account for the organisation's reserve funds also makes it a bit easier to manage finances and keep track of all the expenses.

Sole Proprietorships

These are businesses owned and operated by one person. They may benefit from having a business savings account to separate personal and business finances.

This can help simplify tax lodgements and make it easier to track business expenses. Additionally, a business savings account can provide a cushion for unexpected expenses or fluctuations in income.

Partnerships

In contrast, partnerships are businesses owned and operated by two or more individuals. A business savings account can help partnerships save money for future investments or unexpected expenses, just like any other kind of business.

It can also make it easier to manage finances and keep track of expenses, especially if the partners have different spending habits or financial goals.

Advantages of a Business Savings Account

So, we've talked a lot about what they are and who might benefit from them, but why's it actually worth opening a business savings account over any other kind of account?

We're all aware of how crucial it is to manage your finances when running a successful company, with choosing the right type of account to hold your funds being a critical part of that.

Although you might just be tempted to use your personal savings account for business purposes, this can cause some major tax problems in the future.

Let's take a closer look at these advantages and see how they can help you manage your finances more effectively:

Earning Interest

As with most easy access saving accounts, people like them because they offer an opportunity to earn interest on the money you're not actively using.

This can be especially beneficial when it comes to earning more money on the funds you save, which can be used to pay down debts, reinvest surplus cash back into your business, or even be put towards any potential expenses in the future.

Separating Personal & Business Funds

Another advantage of having a business savings account is the ability to keep your personal and business finances separate. By separating your business funds in a different account, you can better track your business expenses and income, streamline your accounting, and ease your tax reporting processes.

Keeping your personal and business finances separate can also protect your personal assets in case of a lawsuit or legal action against your business.

Cash that is kept inside your business also avoids personal taxation until it’s withdrawn, which can allow your savings to grow at a greater rate than if you withdrew the funds as dividends and put them in a personal savings account.

Access to Business-Specific Tools and Services

Because you're applying for a business savings account and not just any generic type of savings account, many banks and other financial institutions provide additional tools that come with them.

While for everyday notice accounts you get access to basic financial advice and savings tools, you'll typically find that for businesses banks go the extra mile and offer things like merchant services, cash management, and business credit cards.

This type of stuff can naturally be a big help when it comes to managing your finances on a larger scale.

Easy Access to Funds

These accounts are also highly flexible when it comes to liquidity, giving you a straightforward means of accessing or withdrawing money whenever you need to. Unlike certificates of deposit that force you to wait a fixed term time duration before withdrawing, business savings accounts let you take money out as you please without incurring any penalties.

This gives you instant access to your capital on your own terms, not whenever your provider lets you.

As a business owner, you know how unpredictable it can get when it comes to expenses, which is exactly why having something like this can be of use to you.

Whether it's an accident in the workplace or you simply want to reorganise your business's portfolio, you shouldn't have to wait around to see your money again.

Backed by The FSCS

You're probably familiar with them already, but the Financial Services Compensation Scheme is a deposit scheme which was set up by the UK government to give businesses and individuals added security when banking

Accounts which are covered under the scheme are eligible for protection, meaning the FSCS would step in to compensate you for your losses in the event of your bank becoming insolvent. As it stands, the compensation amount is limited to £85,000 per bank account, which is obviously quite a big deal.

Even if your business had multiple savings accounts with a bunch of different banks, you'd be able to claim that full amount for each one of them. Keep in mind that this limit is per banking group, not each ‘brand name’. 

So for example, NatWest and Royal Bank of Scotland are both owned by the NatWest Group parent company, meaning the £85,000 limit would be combined for accounts from these banks.

Final Thoughts

To wrap things up, it's worth stressing how business savings accounts aren't merely just another account to add to the long list of financial instruments your business has, but are actually an essential tool for securing your business's financial future.

When you take the time to shop about and find a provider that's right for you, you're not only giving yourself a reliable cushion in case of any financial emergencies, but you're also giving yourself an opportunity to save towards any long-term business goals.

The business world is already competitive enough, and leveraging every available tool on the market to give yourself an edge can not be stressed enough. So, don't wait any longer, take action today, get business savings rates and open an account today, your company and your financial future will thank you!

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