You should have a business bank account for your company’s finances, regardless of your business size. With one, you can keep your personal and business assets separated, which protects both your company and your personal finances. Having a business bank account also allows you to build a relationship with your business bank, which will help if you need additional banking products, such as retirement planning, merchant services, and small business loans.
Video: Do I need a Business Bank Account: 5 Things You Need to Know
Who Needs a Business Bank Account?
Nearly every business owner can benefit from a small business bank account. If you’re operating a business as a separate legal entity, you’re required to have a business account. Many are free to open and have no minimum balance or opening deposit requirements, and some even earn interest.
You should strongly consider opening a business bank account if you:
- Own a business: It’ll benefit you to have a small business checking or savings account as you can separate your personal assets from your business.
- Run a freelance business: Business bank accounts aren’t just for large corporations. A freelancer can keep their business finances separate from personal ones in a business bank account. Check out our top banks for self-employed professionals to find a good fit.
- Have more than one business: A business bank account can help you keep the assets of multiple companies separated. Our roundup of the best banks for small businesses provide plenty of options.
- Have a business partner: Because all partners will need access to business finances, you’ll want a separate account that everyone in your management team can check.
- Own real estate investment properties: If you open a bank account for each investment property, it allows you to keep the finances of each one separate, which not only limits personal liability but also helps your tax professional keep deductions organized. See our leading banks for real estate investors for a suitable provider.
- Have employees: Many banks offer payroll services to businesses, which allows you to make sure all payroll and deductions are handled accurately. Some banks even offer discounts on accounts for your employees.
- Use multiple vendors: Banks also offer accounts payable (A/P) and accounts receivable (A/R) assistance for your business to ensure all your bills are paid and received on time. If you’re seeking excellent business services and software integrations, see our top-recommended banks for ecommerce businesses.
- Need proof of business finances: If your business continues to grow, you’ll need financing at some point. If you take out credit in the business’ name, you’ll need tax documents that support your business’s ability to repay the loan. You may be interested in our list of the best banks for small business loans for options.
Types of Business Bank Accounts to Consider
Small business owners have several business bank accounts to choose from. You need to find an account that matches your small business needs.
These are the common types of business bank accounts:
- A business checking account is used for your business transactions. It lets you deposit and withdraw funds, make business payments, and make purchases using a debit card. It can be a basic, interest-earning, analyzed, or specialized nonprofit checking account. See our best small business checking accounts to find a suitable account for your business needs. If you’re a nonprofit organization, you may want to review our roundup of the top banks for nonprofits.
- A business savings account helps you manage your business finances and typically bears interest and is reserved for future business spending. Check out our best business savings accounts if you want to grow your business cash reserves. Business certificates of deposit (CDs) and business money market accounts (MMAs) generally fall under the category of business savings products. Having these two accounts are among the best ways to earn interest for your business. See how they stack up against each other by reading our comparison of business MMA vs CD.
- A merchant account makes it easy for business owners to receive payments through credit and debit cards. If you have an ecommerce business, opening a merchant account is essential. You may be interested in our list of the best banks for ecommerce business to find a suitable provider.
How Does a Business Checking Account Work?
A business checking account works very similarly to a personal checking account. Once you open the account, you can make deposits and withdrawals, write checks, send ACH and wire payments, and use a debit card for purchases. Both, however, give you access to overdraft protection and FDIC insurance protection.
With business checking, the account can be set up for one person or multiple people to access. You can usually get several debit cards to help you track spending. And just like personal checking, you can download an app or visit a website to access your business account information.
Having all your business transactions tied to a business account allows you to use financial software, such as QuickBooks, to manage your finances. To learn more about this business accounting software, read our guide on what QuickBooks is.
Note that opening a business bank account will often take longer and require more paperwork than opening a personal bank account. However, most banks will allow you to open and fund an account on the same day. Fees for business accounts are usually higher than personal accounts, and thresholds to waive those fees are also higher.
Business Checking Bank Account vs Personal Checking Bank Account
The table below highlights some differences between business and personal bank accounts, especially when it comes to costs.
Business Checking | Personal Checking | |
|---|---|---|
Monthly Fees | Low fees, often waivable | Usually free |
Fee Waiving Thresholds | Usually higher | Usually low |
Minimum Balance or Opening Deposit Requirements | Sometimes | Usually no |
Transaction & Cash Deposits Fees | Often a limit with fees for exceeding monthly limits | Usually no |
Time to Open | Usually minutes, although sometimes up to 48 hours | Usually minutes |
Access to a Bank’s Business Services | Yes | No |
Usually, personal checking accounts are free or have very low waivable fees, and have no minimum balance and opening deposit requirements. More often than not, they have no limits on transactions, have no cash deposit fees, and can be opened in minutes.
However, you won’t have access to a bank’s business services, such as merchant services, with just a personal account. If you operate your business as its own separate legal entity, opening a personal account for your business isn’t an option.
While some banks offer free business checking, usually online-only accounts, most traditional banks charge fees that can be waived. Those fee-waiving thresholds are usually higher than with personal accounts. Some banks have minimum balance and opening deposit requirements, and there are fees if you exceed monthly transaction limits or cash deposits.
Benefits of a Business Bank Account
Why do you need a business bank account? There’s almost no reason not to open a business bank account to support your small business:
- It keeps your business and personal finances separated: You need to ensure your business financial records are accurate. Keeping your business and personal assets separated makes this process much easier.
- It helps you build your business credit: When you open a business bank account, credit bureaus begin tracking the credit history of your business. This will help when you need a business loan or line of credit.
- It lets you assess your business performance more easily: With your income and expenses running through a dedicated account, it becomes easier to analyze your business’s performance. Some banks even offer software to track business performance.
- It lends credibility to your business: Customers will see your business as more trustworthy when payments come from a business account instead of your personal account.
- It helps simplify tax season: Tax preparation will be much easier at year-end because using a business checking account helps maintain a record of income and expenses
- It helps you build a banking relationship: Building a banking relationship can be beneficial if you need business financing in the future.
- It allows you to accept credit card payments: Many banks offer merchant services to their customers, which allow you to accept credit card payments into your business checking account.
Drawbacks of a Business Bank Account
There are very few drawbacks to opening a business bank account. The items listed here shouldn’t deter you from getting an account as these are just things you need to be aware of before opening a business bank account:
- Minimum balance or minimum opening deposit requirements: If your business is very small, you need to check to see if the business bank account you want has a minimum balance or minimum opening deposit requirement. If you need a business bank account with no minimum balance requirements, visit Bluevine or read our Bluevine business checking review to learn more.
- Monthly fees, although they usually can be waived: Many business bank accounts come with monthly fees, which can be waived if you meet transaction or balance requirements. If monthly fees are too high for your small business, find a business account with no monthly fees, like Novo. Our Novo business checking review provides details about the provider’s account features. Alternatively, you can visit Novo for more information.
- Transaction and cash deposit fees: While most banks have these fees, Bank of America has two tiers of business checking accounts with waivable monthly fees that allow you to increase the number of free transactions as your business grows. Read our Bank of America business checking review to see which of the two accounts is a good fit. You can also visit Bank of America to learn more.
How To Choose a Bank For Your Business Account
After learning the benefits of a business bank account and deciding to open one, you need to consider a handful of things when choosing a bank for your small business:
- Banking products: Do you just need a business checking account, or do you need a full-service bank for your company’s finances? What services you need now might determine which bank you choose.
- Physical locations or online-only banks: If you regularly deposit cash, you might want a bank with a physical location. If you don’t need a physical location, you can choose an online-only bank for your business.
- Bank fees: Most banks charge fees for business accounts and services, although some can waive those fees if conditions are met. Check out our best free business checking buyer’s guide for accounts with no fees or waivable fees.
- Account perks: Some banks offer promotional bonuses if you sign up for an account and meet specific transaction or balance requirements.
- Scalability for future needs: While you might only need a business checking account for now, if you plan to grow and expand your business, you might need merchant services or lending products in the future.
What Do You Need to Open a Small Business Bank Account?
Before opening a new account, there are steps you need to take and documents you need to provide. Check out our guide on how to open a business bank account first.
Depending on how your business is organized, additional documents may be needed. Whichever bank you choose will provide you with a list of exactly what you need, but here’s a list of documents that you’ll need to submit, regardless of what kind of business you operate:
- Employer identification number (EIN) or Social Security number if you’re a sole proprietor
- Fictitious business name certificate or doing-business-as (DBA) certificate
- Business formation documents
- Organization documents, including your ownership agreements
- Business licenses
- Government-issued photo ID, such as a passport or driver’s license
For greater convenience, you can choose to do online banking to open a business bank account. See our roundup of top online business banks to discover the right provider for your company.
Frequently Asked Questions (FAQs)
While sole proprietors and single-member limited liability companies might legally be able to use a regular bank account for business, it isn’t recommended. If your business operates as a separate legal entity, you must open a business bank account.
You should have a bank account for your business, no matter how small your business is. Furthermore, you should use a business bank account and not a personal bank account. If you’re making enough money to include on your tax return, having a separate business bank account will make tax preparation easier. This will help you avoid any potential IRS issues down the road.
You should avoid paying personal bills from a business account. It makes determining business cash flow more difficult, which could cause tax problems. In addition, if you’re a corporation or limited liability company, you may negate your personal asset protection by paying personal bills out of a business account. This could get you in trouble with the IRS and open you and your fellow owners up to personal liability if the business is sued or fails. Avoid it at all costs.
Bottom Line
While it may be convenient to use a personal bank account when you’re operating a very small, single-owner business, we recommend that you open a business account instead. Some of the benefits of a business bank account are it’ll give your business more credibility with customers, help you build a business relationship with your bank, and simplify tax preparation. At the same time, it limits your exposure to potential tax and liability risks.
