Just like an individual should set money aside for a rainy day, a small business should set money aside for emergencies, bad months, and unexpected expenses. One of the best ways to do so is with a business savings account. In this article, we’ll cover the following:
- Do You Need a Business Savings Account?
- Benefits of Opening a Business Savings Account
- Interest Rates and Fee Comparison, Top 10 Banks
- Money Market Accounts, Certificates of Deposit, and Sweep Accounts
- How to Choose a Bank
While a business savings account is primarily for businesses with some surplus income, a business checking account is a necessity for most small businesses. If you’d like to learn about business checking accounts, click here. We use and recommend Bank of America for checking.
Do You Need a Business Savings Account?
You should consider opening a business savings account if you have collected cash more quickly than you can spend it. For example, maybe a large customer order has left you with some surplus funds. Instead of letting them sit idle, you can earn some interest on the money by putting it in a savings account. This also gives some money to use for unexpected costs or in emergencies.
Some small businesses don’t have the luxury of having surplus funds to stow away in a savings account. If your business is barely getting by, we suggest focusing on improving cash flow first and then coming back to this article.
Benefits of Opening a Business Savings Account
Opening a business savings account has three main benefits:
- It pays interest – Checking accounts either do not pay any interest or very nominal levels of interest. Savings accounts generally pay more interest. Currently, interest rates are low, but as the economy improves and rates rise again, businesses will be able to earn more interest on money that is in a savings account.
- It makes it easy to save money – The main point of a business savings account is to encourage you to save money. Banks limit the number of free withdrawals and transfers you can make from your savings account each month, so there’s a built-in incentive to save money and keep it there.
- It makes it easy to transfer money between your checking and savings accounts – If you already have a checking account, you should consider opening your savings account at the same bank that you have your checking account. Although there are limits on the number of free transfers each month, having your accounts at the same bank makes transfers easy.
At Fit Small Business, we have both our checking and savings accounts at Bank of America. We use the checking account for day to day transactions, such as paying employees and vendors. The savings account, on the other hand, allows us to save money for the future of the business. We only take money out of the savings account if we have a very good reason to do so (e.g. a specific growth opportunity in the business that we need to spend money on).
A Word of Caution: It’s important to have a business savings account separate from any personal savings accounts or checking accounts that you might have. Having separate business accounts helps simplify bookkeeping and can even help you save money on your taxes. In addition to that, says CPA Ravi Ramnarain,”the funds belonging to the business and the funds personally belonging to the owner should not be combined.” If you have an LLC or corporation, “the commingling of funds could make the owners personally liable for any business liabilities.”
Which Banks Offer the Best Interest Rates and Lowest Fees on Business Savings Accounts?
To compare interest rates and fees on business savings accounts, we took a look at the 10 largest banks in the country (ordered from most to fewest number of branches). In this table, we also note how to get the monthly maintenance fee waived.
Business Savings Account Interest Rates & Fees for Top 10 Banks
|Bank||Minimum Opening Deposit||Current Interest Rate|
(as of Aug. 2016)
|Monthly Maintenance Fee||How to Get Fee Waived|
|Bank of America Business Investment Savings Account||$100||.02%||$5 / month||Maintain $1,000 minimum daily balance|
|Wells Fargo Business Market Rate Savings||$50||.03%||$6 / month||Maintain $500 average balance or make $25 or more in automatic transfers each month from Wells Fargo business checking account|
|Chase Business Savings||$25||.05%||$5 / month||Link account to Chase business checking account|
|U.S. Bank Basic Business Savings Account||$100||.01%||$5 / month||Maintain $300 minimum daily balance|
|PNC Premium Business Money Market Demand Account||$100||.01%||$12 / month||Maintain $2,500 average monthly balance|
|BB&T Business Money Rate Savings||$100||.01-.02% Depending on Balance||$10 / month||Maintain $250 minimum daily balance, $500 average monthly balance, or make a preauthorized deposit or transfer of at least $100 each month|
|Regions Bank Business Savings Account||$50||.01%||$5 / month||Maintain $500 minimum daily balance|
|Suntrust Business Advantage Money Market Account||$100||.01%||$5 / month||Maintain $500 minimum daily balance|
|TD Bank Business Savings Account||$25||.05%||$5 / month||Maintain $500 minimum daily balance|
|Fifth Third Bank Business Relationship Savings Account||$50||.02%||None||Not Applicable|
Interest Rates on Business Savings Accounts
As the table above makes pretty clear, the current interest rate environment is not very friendly for small businesses. However, market rates are increasing, so now could be a good time to open a business savings account.
Last year, the Federal Reserve raised rates slightly, and it has signaled that rate hikes in the near future are likely. In response, banks will boost interest rates, and businesses can save more money.
In addition, banks will sometimes offer promotional interest rates for a short period of time. For example, PNC Bank is currently offering an interest rate of 1.25 % for the first three months if you open a new Business Money Market Demand Account. Such promotions can help you save some cash.
Fees on Business Savings Accounts
There are generally four main fees on business savings accounts that you’ll want to keep in mind when choosing a bank:
- Monthly servicing fee – This fee can generally be waived if you maintain a minimum balance in the account or transfer a minimum amount of money each month from a checking account that you hold with the same bank.
- Deposited items fee – Banks generally allow you to make only a certain number of free deposits into a savings account each month. The upper limit is typically around 20 deposits. After that, a fee is charged, which is in the range of $0.30 to $0.50 per deposit.
- Coin/currency fee – Banks usually charge fees after you deposit a certain amount of cash each month. The upper limit is typically around $5,000, after which there’s a fee of around $2 to $4 per $1,000 deposit.
- Fee per withdrawal or outgoing transfer – The number of withdrawals and outgoing transfers you can make from a savings account is regulated by a federal law called Regulation D.
What is Regulation D?
Currently, Regulation D limits you to 6 withdrawals or outgoing transfers per month from a savings account. Transactions counted against the limit include online and mobile transfers, telephone transfers, and withdrawals made by check or debit card. In-person withdrawals and ATM withdrawals are not counted.
What If I Do More than 6 Transactions in 1 Month?
Once you exceed the 6-transaction limit, different banks will take different actions. Some banks, like Bank of America, will convert your savings account to a checking account or will close your savings account. Others, like Wells Fargo and BB&T, will charge you an “excess activity fee” (e.g. Wells Fargo charges $15). To learn more about Regulation D, click here.
Online Banks May Offer Higher Interest Rates and Lower Fees
Don’t forget about online ‘branchless’ banks. Many online banks have lower fees, higher interest rates, or both compared to traditional banks. The downside is that you don’t get the same relationship you would with a traditional bank and may not be able to do other things down the line at the bank that would grow your business, such as getting a business loan or a merchant services account.
Blogger and solopreneur Jeff Kneal uses an online bank called SmallBusinessBank.com because “they offer free mobile banking and remote deposit. But best of all, there are no transaction or balance limits. Most other banks were asking for a high minimum balance. This bank was great to use to get some ecommerce stores and blogs started.” SmallBusinessBank.com is FDIC-insured, and as long as you maintain at least a $100 balance, you won’t be charged any maintenance fees for their High Yield Savings Account.
Types of Savings Accounts – Money Market Accounts, Certificates of Deposit, and Sweep Accounts
Money market accounts, certificates of deposit, and sweep savings accounts are some terms that you may come across when shopping around for a business savings account. Here’s a breakdown of what these terms mean.
Money Market Accounts
Money market accounts are very similar to savings account, and the term is sometimes used interchangeably with savings account. The main difference is that the opening deposit and minimum balance required for a money market account is usually higher, and in exchange, you can typically earn a slightly higher interest rate. Just like savings accounts, money market accounts are typically FDIC-insured.
Certificates of Deposit
A certificate of deposit (CD) is a bank account in which you deposit money for a specific period of time, usually anywhere from 3 months to 5 years. Since you are depositing money for a longer period of time, you will generally earn a higher interest rate. However, if you take the money out before the term is over, the bank will charge you a penalty. CDs can be a good choice for businesses that have extra cash on hand (e.g. from a large order) and aren’t sure what to do with it. You could reinvest the cash back into the business, but a CD is usually a safer bet. Just remember–an ordinary business savings account gives you immediate access to your money should you need it, while a CD has a specific term.
Current CD rates, especially those at larger banks, aren’t that impressive, ranging from about 0.1 % for a 9-month CD to 0.50 % for a 5-year CD. These are not much better than ordinary savings account rates. Smaller banks and online banks, such as First Internet Bank and Everbank, typically offer better rates. First Internet Bank’s rates range from about 0.50 % for a 3-month CD to about 1.92 % for a 5-year CD. Everbank’s rates range from 0.70 % for a 3-month CD to 1.73 % for a 5-year CD. Online banks and smaller banks, as long as you confirm that they are FDIC-insured, can be a good choice for CDs.
Sweep Savings Accounts
A business sweep account is designed for businesses that have some extra cash in their business checking account. You can set a target balance that you want to maintain in your checking account. If your balance exceeds the target, the excess funds will automatically be transferred to your savings account. This is a great way to conserve idle cash. If your checking account balance dips below target, funds will be swept back into the checking account to cover any withdrawals, checks, or debits.
U.S. Bank, PNC Bank, and Comerica are a few of the banks which offer business sweep accounts. If you regularly have some extra cash on hand each month after you pay your employees, vendors, and other business expenses, a business sweep account can be a smart choice. In most cases, sweep savings accounts are FDIC-insured just like regular savings accounts.
How to Choose a Bank
There are a few different things to keep in mind when choosing where to open your business savings account:
Relationship with the Bank
Some small businesses choose to keep their checking account, savings account, loans, and other accounts at the same bank so they can build up a good relationship with their banker. This can help because someone gets to intimately know your business and can help you figure out solutions for your business as it grows.
Marie Hale, co-founder of @revenue, a Chicago-based sales and marketing collaborative, chose a local bank called MB Financial because of a great connection with her personal banker. Hale said, “The ability to call him when I needed help (he was the first dial I made after a client did a chargeback on her credit card payments) or ask him for his opinion and connections has not only saved me money, but it has helped me grow and mature in my business.”
The higher the interest rate on a savings account, obviously the more money you can earn for your small business. However, interest rates aren’t everything. In today’s market, the difference between a .01 % interest rate and a .05 % interest rate means very little in terms of actual dollars. So if you find a bank that you like for some other reason (e.g. their excellent customer service, mobile app functionality, or convenient locations), don’t dismiss it simply because it’s not offering the highest rates currently. See our table above to see current interest rates at the 10 largest banks.
Chris Post, founder and CEO of marketing and web development firm Post Modern Marketing, didn’t focus too closely on interest rates. “We have our business savings and checking account with our local community business bank,” he said, “Our biggest motivating factor wasn’t a numbers thing, such as a specific interest rate or low fees. It’s the fact that they have great customer service. They’re courteous, they greet us by our first names, and they’re enthusiastic about having our business and keeping it.”
Even if your savings account is earning a high interest rate, keep in mind that high fees can offset those earnings. Most banks are pretty similar in the fees that they charge, though online banks can offer some good deals if you don’t need physical branch locations. Read our section above on fees for more details, and have a look at our table above showing fees from the 10 largest banks.
Locations & Convenience
If you know you’ll be making in-person deposits, transfers, or withdrawals from your business savings account, branch locations is going to be an important factor. Find out how many banks are located near all of your business locations (USBankLocations.com allows you to input your zip code and find the banks nearby).
Online and Mobile Functionality
If you don’t do much banking in person, chances are you will be relying on good mobile and web functionality. We use the Bank of America mobile app for both checking and savings and have been very happy with it. The better mobile apps out there, such as Bank of America’s, allow to you make mobile deposits, pay vendors, and make transfers between accounts.
Other Bank Products
Even if all you need right now may be a small business savings account and checking account, that might change as your business grows. Now’s the time to see what other products your bank offers, such as SBA loans, merchant account services, and credit cards. Having your savings account at a particular bank doesn’t mean that the bank will give you preferential rates on other products, but it can help you stay in the know and keep your banking in one convenient place.
The Bottom Line
Opening a business savings account for your business is a great way to put idle funds to work and earn some interest. While it’s important to keep interest rates and fees in mind, those shouldn’t be your only consideration when choosing where to open your business savings account. The relationship with your banker, convenient bank locations, mobile banking, and other bank products are also things to keep in mind.
Also remember that, at the end of the day, a good business savings account doesn’t exist alone–it acts in concert with a business checking account, business loans, and other financial products. For small business banking, we recommend Bank of America, based on their competitive rates and quality of service.