What is a business savings account?
A business savings account is a place to store some of your company’s surplus funds -- the money you don’t need to keep in your checking account for paying your employees and vendors on a regular basis. A business savings account is similar to a personal savings account: You deposit money and watch it grow, thanks to interest rates that are generally higher than you’ll find on checking accounts.
Another feature business and personal savings accounts share is insurance protection. If you enroll in a business savings account at a federally insured bank or credit union, your money is insured up to $250,000 by the Federal Deposit Insurance Corporation or the National Credit Union Administration respectively.
How do business savings accounts fare in today’s economy?
Today’s interest rate environment is great news if you’re focused on saving money. While rates for business savings accounts aren’t as high as some of the best personal savings accounts, there are still some attractive options for parking your cash and watching your interest earnings grow.
How to choose a business savings account
As you compare different business savings accounts, be sure to consider these factors:
The type of account: Don’t limit your search strictly to “business savings accounts.” Our research shows that some money market accounts and cash management offerings deliver some compelling benefits for business owners, too.
Deposit requirements and fees: Some business savings accounts come with fairly high minimum monthly balance requirements to avoid fees. If you’re worried about maintaining the required balance, it’s wise to look elsewhere and avoid the monthly fees.
Promotional rates: There are loads of attractive promotional rates that will turn your head. U.S. Bank is currently guaranteeing a bonus APY of 4.50%, for example, on its Platinum Business Money Market account for accounts opened before May 8, 2024. But the rate applies to balances from $25,000 to $2,999,999.99. If your balance falls outside these limits, you’ll earn just 0.05% to 1.15%.
Remember, your business is a long-term operation, so worry less about promotional gimmicks and more about a bank that will meet your needs for years to come. If you’re torn between two similar accounts, however, a bonus could help tip the scales.
Rates: Pay close attention to the APY you can earn with a business savings account. Some of the biggest banks pay a pittance -- 0.01%, for example -- that won’t do much to advance your savings goals.
How your company is paid: If you deal regularly in cash, you’ll need to make deposits at a nearby branch or ATM. If you aren’t worried about physical cash, however, you should consider an online bank. In the banking industry, lower real-estate overhead typically translates to higher APYs.
Your expected balance: If your business will have more than $250,000 in savings, you’ll want to divide your deposits among multiple accounts to ensure your money is fully insured or look for business accounts that offer an expanded FDIC insurance option. These programs provided greater coverage for your business deposits by automatically transferring funds across multiple federally insured institutions.
How do business savings accounts work?
Business savings accounts work similarly to personal savings accounts. You’ll deposit cash and checks in person at a branch, ATM or via mobile deposit. It’s important to note that some of the best business savings accounts on our list are digital banks that don’t accept cash deposits.
Pros and cons of business savings accounts
Setting up a business savings account
Opening a business savings account is a bit more complicated than opening a personal savings account. Some banks allow you to open a business savings account online, while others require you to visit a branch to sign all the necessary documents. To avoid delays, call the bank to verify you have all the necessary documentation before going in.
What you need to apply for a business savings account
If you’re going to open a business savings account, be prepared with the following information:
- Your business’s employee identification number or tax ID number
- Articles of incorporation that show when your company was formed
- A government-issued ID and Social Security number for any business employee who will be authorized to manage the account
It’s important to note that if your business qualifies as a sole proprietorship, your requirements will be limited. You may only need your Social Security number. If you don’t have an SSN, some banks may allow you to open an account with an Individual Taxpayer Identification Number, or ITIN.
FAQs
The biggest difference is the documentation needed to open an account. While a standard savings account typically only requires your Social Security number, you’ll likely need to show additional proof of your business and its operations to open a business savings account.
Many banks cap free withdrawals from business savings accounts to six per statement cycle. After that, an excessive transaction fee may apply. Be sure to ask any bank you’re considering about excessive transaction fees before opening an account.
Any interest your business earns from a business savings account is considered taxable income. Expect to receive a Form 1099 from your bank that you can use when you file your business taxes.
Yes, provided the account is protected by FDIC or NCUA insurance. Make sure, though, that you’re staying within the coverage limits. If your business has more than $250,000 in savings, you’ll want to try to divide your deposits among multiple accounts or look for business accounts that offer an expanded FDIC insurance program.
