I think we can all agree that a business checking account is one of the most important financial products for a small business, but also one of the hardest to shop for. Dozens of banks offer “free business checking,” but it’s not always clear what exactly is free and who offers the best deal. Fortunately, it is possible to get a small business checking account that will save you money and help you reach your business goals.
Our infographic compares free business checking accounts from three major banks: Bank of America, Wells Fargo, and Citibank. We also explain some general tips to keep in mind when choosing a business checking account.
How to Save Money With Free Business Checking
Lots of banks advertise “free business checking,” but what exactly does this mean? Normally, banks charge account holders a service fee of $8-50 per month.
Free checking means the bank will waive the monthly service fee if you do one of the following:
- Maintain a minimum average monthly account balance. To calculate the average monthly balance, the bank will add up your closing balance on each day of the month and divide by the number of days in the month.
- Maintain a minimum average monthly balance in all linked accounts.
- Never go below a certain account balance.
The required minimums vary by bank.
As our infographic shows, Bank of America waives service fees for its Business Fundamentals Checking Account if you maintain a $5,000 average monthly balance, a $15,000 average monthly balance including linked accounts, or never go below a $3,000 balance. These are significantly lower than Wells Fargo’s and Citibank’s minimum balance requirements and the main reason why we recommend Bank of America as the best bank for small business checking.
If you can’t maintain a minimum balance, Bank of America also has a fourth way to avoid service fees: spend at least $250 each month on a linked Bank of America debit or credit card.
Free Business Checking Doesn’t Mean Zero Fees
Even if you have a free business checking account, and the bank waives your monthly service fee, you may still have to pay other fees. These include:
- Cash deposit fees
- Transaction fees
Most banks have limits on the amount of cash that can be deposited for free, typically around $7-10K per month. Bank of America, who we actually use ourselves at Fit Small Business, doesn’t charge anything for deposits up to $10K each month. After that, there is a .2 % to .3 % fee depending on the size of the deposit. For instance, if you deposit $20,000 in one month, the fee would be .2 % or $40.
Typically, there are also limits on how many transactions you can do for free each month. Transactions include things like cashing checks, depositing checking, withdrawing money, and transferring money. Out of the three banks we compared, Citibank allowed the largest number of free monthly transactions: 250. However, Bank of America and Wells Fargo weren’t far behind, with 200 free transactions each. Bank of America also offered the lowest cash deposit fees, making it the best value overall. After the transaction limit is reached, there’s a small fee–usually no more than $0.50 at most banks–for each additional transaction.
Remember to ask your bank if there are other fees, such as ATM fees and transfer fees, before opening an account.
Choose a Bank or Credit Union With Branches Close to Your Business
According to Barlow Research Associates, 64 % of small businesses used online banking back in 2013, and that number has likely increased by now. However, even though a lot of banking is now digital, some small business owners prefer to bank at an ATM or branch. Also, some deposits, like large cash deposits, need to be done in person.
Wells Fargo had the largest number of branches nationwide, but Bank of America wasn’t too far behind. Citibank was more limited, with more than 70 % of its locations in California and New York. If your business isn’t in one of those two states, you’ll have more options with Bank of America or Wells Fargo.
For this article, we compared three of the largest national banks. However, you may also want to consider a community bank or a credit union. Often times, credit unions have lower minimum balance requirements and fees than banks. The downside is that many credit unions don’t offer good online banking.
Always Avoid Using Your Personal Checking Account for Business Purposes
According to a Citizens Bank survey, about 70 % small business owners still use personal checking accounts for business purposes. Ultimately, no matter where you choose to bank, this is a big no-no.
Always use a dedicated business checking account to avoid legal, accounting, and tax troubles. If you have an LLC or Corporation, it’s especially important not to mix business and personal finances in order to preserve limited liability. However, even if you have a sole proprietorship or partnership, it’s a lot more efficient to keep business and personal finances separate.
Many banks offer free small business checking accounts. Before deciding where you want to open your account, make sure you understand what a bank means by “free business checking.” You should make sure you know what other fees the bank might charge you, so there are no unpleasant surprises later on.