Types of Business Bank Accounts

You may know the ins and outs of managing your personal checking accounts, but what about doing the same for your business? When thinking about different types of business bank accounts, you obviously want to know which ones may best fit your company. 

While there is not a one-size-fits-all solution, having an understanding of the different accounts, banking requirements, and when they might be necessary can make your choice much simpler. 

Is It Necessary To Have Separate Bank Accounts?

While separate bank accounts are not a requirement for sole proprietors and small businesses that are not incorporated, they can be crucial when it comes to scaling your business.

Though business bank accounts function in the same way as personal accounts, owners gain more protection when designating these transactions. For example, if your business was facing a legal claim, having a business bank account may further protect your personal finances versus having them intertwined with your entity.

You can also accept checks and credit card payments for your business, add employees as authorized users, and start to open business lines of credit. Having a business bank account is also required when applying for many types of loans.

Checking Account

Chances are you’ve already had one or several personal checking accounts, so business checking accounts shouldn’t be a drastic change. One of the main differences, though, is that the account will be in your business’s name, which means more professional invoicing, statements, and checks when issuing payments.

You can make deposits, transfers, and withdrawals just as you would with your personal account. There may be limits on certain types of transactions—for example, with a Bank of America ATM card, users can only withdraw $700 per day depending on the state.

When you’re opening your business bank account, make sure to read all of the details on the financial institution’s site to ensure any limits align with your anticipated transaction volume. 

The checking account may or may not come with maintenance fees. Some come with optional services like Positive Pay, which helps prevent check fraud, typically for an additional fee. Generally speaking, business checking accounts will require an opening deposit or a monthly minimum. There are free business checking accounts that waive monthly fees or exclude them altogether. 

Savings Account

Business savings accounts do allow your business profits to grow at a set interest rate but compared to checking accounts, the funds are not usually as accessible. 

These accounts also come with set guidelines on deposits, concerning both methods and amounts. With Chase Business Total Savings, for example, users are allowed up to 15 deposits and $5,000 in monthly cash deposits at no charge. This means that fees are incurred once maximums are reached.

Minimum deposits for business savings accounts may also be higher than checking accounts and the amount deposited may impact your annual percentage yield (APY).

Certificate of Deposit Account

Certificate of deposit (CD) accounts may be attractive because they can earn you a higher APY and therefore a bigger return.

The caveat is that you are agreeing to put away money for a specified time and penalties will be levied if you need to withdraw before the maturity date. Terms will vary from bank to bank but can range anywhere from 28 days to 10 years. 

Rates are also variable, but typically the higher the minimum deposit required the higher the APY offered will be. 

A few additional aspects to keep in mind are that though all CDs issued by Federal Deposit Insurance Corporation (FDIC)-insured banks are protected, not all banks are covered. There are also different types of CDs that you can open depending on your long-term financial goals for your business. 

Money Market Account

If you’re stuck between the idea of business saving accounts and CDs, money market accounts (MMAs) may be an option worth considering.

These interest-bearing accounts may offer higher APY than your traditional savings accounts and permit users to issue checks depending on the bank. MMAs can come with fewer barriers when it comes to accessing funding, with some banks offering ATM access and the ability to link to a business checking account to bypass certain fees.

However, like CDs, these accounts may work best for businesses that keep higher monthly balances in savings. 

How To Open a Small Business Bank Account

Now that you know more about the different types of business bank accounts, it’s time to do some research and open your account.

First and foremost, when opening your small business bank account, thoroughly research the banking institution. Is it online or brick-and-mortar? Do they have banking products that your business could use in the future?

Then, determine which accounts you want to apply for and what the requirements are. For example, in addition to business formation documents, there may be financial stipulations regarding your credit. Be prepared and gather all documentation beforehand.

The last step is to make your first deposit, which can usually be done via electronic cash transfer, written check, or cash deposit. 

Frequently Asked Questions (FAQs)