When opening a business bank account, it’s important that you pick the right banking institution and bank account as well as prepare the correct documents before applying. Opening a business bank account can help separate business and personal expenses. It also makes it easier to budget and manage business cash flow and working capital.

If you are looking for a good small business checking account, take a look at Chase. They have low fees, one of the largest branch/ATM networks nationwide, and they allow unlimited monthly cash deposits, making them one of the most complete and flexible checking solutions for small business owners.

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Below are the 3 steps needed to open a business bank account:

1. Choose the Type of Business Bank Account

Choosing the correct type of business bank account is the first step when opening a business bank account. The type of business bank account will affect the fees as well as the intended use of the account. The specific types of business bank accounts include business checking accounts, savings accounts, and certificates of deposits (CDs).

Business Checking Account

A business checking account is a deposit account that provides a debit card and physical checks, used to pay for working capital expenses. The account also allows for cash and checking deposits using an ATM, mobile app, branch, or direct deposit. Small business checking accounts typically do not earn interest. However, there is usually no transaction limit and it is the most versatile type of business account.

Business Savings Account

A business savings account helps a small business save money and earn interest on their extra working capital. Business savings account typically have a transaction limit and businesses should only use it if they’re trying to save money for a rainy day, for an upcoming project, or simply to manage cash reserves. Business savings accounts can link to checking accounts.

Business Certificates of Deposit (CD)

A business certificate of deposit (CD) is a long-term business savings account that typically earns a higher interest rate that a traditional savings account. Business CDs typically have specific terms that range from 1 month to 10+ years. This means that business certificate of deposits can earn a small business more money on idle cash, but reduces liquidity since you can’t withdraw until the term is up.

Which Type of Business Bank Account is Right for You?

Common practice says that the first bank account you should open is a business checking account. This will help you pay vendors and suppliers as well as accept payments from customers. The second account you should open is a savings account to store excess cash and the third is a business certificate of deposit (CD).

“I recommend business owners open a savings account alongside their checking because it reinforces the concept they should not only keep their business cash-flow positive, but they also need to focus on saving. Since investments are locked in for an extended period of time with a CD, business owners should prioritize other types of assets such as saving for retirement with a 401k, investing in mutual funds, or reinvesting back into their business.”

— Keri Gohman, President, Xero America.

2. Choose a Bank

The next step when opening a business bank account is to choose the right bank for your business. The depository institution you choose to bank with will dictate such things as the overall costs/fees, the number of available locations, online banking experience, customer service, and more. A good place to start is with a previous banking relationship.

Consider the following factors when choosing a bank for your business:

• Banking Relationship – Always start your search with a previous banking relationship.
• Cost – Banking costs include monthly servicing fees, deposit fees, and ATM fees.
• Network – The location and number of ATMs and branches suit your needs.
• Online / Mobile Experience –Make sure your bank offers a good online experience, which includes online bill pay and mobile deposits.
• Bookkeeping Integration – Ensure that your bank and bank accounts can integrate with the leading accounting software.
• Future Business Needs – If you expect to need more than just depository accounts, make sure your bank offers small business loans, lines of credit, and small business credit cards. A small business credit card is a great resource for you. You can float business expenses and they offer both travel and cash-back rewards as well as competitive rates. Check out our ultimate guide here.

Weighing these factors when choosing a bank will help ensure that it’s a good fit and that you’re your business benefits in the near- and long-term. One solid option is Chase Bank. They have low monthly account fees, one of the largest branch/ATM networks nationwide, and have some unique perks (like unlimited monthly cash deposits).

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3. Be Mindful of Fees

There are some free business bank accounts while others charge fees. Typically, fees are waived if certain criteria are met, such as with minimum balance, bill pay, transaction limits. Business bank account fees are assessed on business checking accounts, business savings accounts, and business certificate of deposits.

The easiest way to avoid having to worry about most fees, is just to use a free business checking account like those offered by Capital One. There is no monthly fee, minimum balance, or transaction limit. The only fees you are charged are for additional things like wiring money or making large cash deposits, which is the norm with many business accounts. Capital One also has a great savings account option for the extra funds you don’t want to leave lying around in checking.

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Checking Account Fees

Below are the types of business checking account fees you should know:

• Monthly Service Fee – Flat fee that’s waived if certain criteria are met ($10 – $15 per month)
• Minimum Balance Fee – Fee that’s charged if a minimum balance amount isn’t met (~$25 per month)
• Transaction Fee – Fee that’s assessed if account exceeds ~200 monthly transactions ($0.40 – $0.50 per transaction)
• Cash Deposit Fee – Fee that’s charged if account exceeds ~$7.5k cash deposits per month (~3% per deposit)
• ATM Fee – Charge for ATM transactions at out-of-network ATMs ($2.00 – $3.00 per transaction)
• Wire Transfer Fee – Fee assessed on domestic and international incoming and outgoing wire transfers ($15 – $45 per transaction)

For more information on business checking account costs, check out our infographic on how much a free business checking account costs.

Saving Account Fees

Now, here are some of the business saving account fees you might expect to find:

• Monthly Service Fee – Flat fee that’s waived if certain criteria are met ($10 – $15 per month)
• Minimum Balance Fee – Fee that’s charged if a minimum balance amount isn’t met (~$25 per month)
• Monthly Balance Transfer Fee – Per transaction charge for balance transfers that exceed 6 per month ($5 – $20 per transaction)
• Cash Deposit Fee – Fee that’s charged if account exceeds ~$7.5k cash deposits per month (~3% per deposit)
• Wire Transfer Fee – Fee assessed on domestic and international incoming and outgoing wire transfers ($15 – $45 per transaction)

Certificate of Deposit Fees

Now let’s take a look at some of the business certificate of deposit fees that you might have to pay:

• Early Withdrawal Fee – Fee charged if cash is withdrawn before the term (percentage of interest earned or amount withdrawn)
• Broker Fees – Fee that’s charged as a broker’s commission (percentage of CD amount)

Required Documents When Opening a Business Bank Account

When opening a business bank account, you’ll typically need to provide documentation that verifies the name and general nature of your business. You’ll also need to show documentation that proves your business is registered with the IRS and indicates that you have the legal authority to set up the account. Exact documentation will vary based on corporate structure.

Below is a list of the required documents needed to open a business bank account based on your corporate structure:

Sole Proprietorship

You are a sole proprietorship if you own a business, are the sole owner, and have not filed paperwork to be a Limited Liability Company (LLC) or Corporation. In this case, you’ll need your social security number as well as 2 forms of personal ID in order to open a business bank account. Valid types of IDs include a driver’s license, passport, and social security card.

You might also need a “Fictitious Business Name” certificate known as a “doing business as” certificate (DBA certificate) if your business operates under a different name from your own.

Limited Liability Company (LLC)

Your business is a Limited Liability Company (LLC) if you’ve filed articles of organization with the state and are in good standing. You’ll also typically be required to also have an LLC operating agreement. To open a business bank account, you’ll need your Federal Employee Identification Number (EIN) as well as a copy of your articles of organization.

In addition, you might also need a signed operating agreement that’s similar a business partnership agreement. You also may need a signed Declaration of Unincorporated business as well as any required business licenses, such as the case with healthcare businesses or restaurants.

C-Corporation

You are a C-Corporation if you have filed articles of incorporation with the state and are in good standing. Like an LLC, you’ll need your Federal Employee Identification Number (EIN) to apply for a business bank account. Additionally, you’ll also need your Certified Articles of Incorporation and Corporate Charter. You’ll receive these documents as part of your incorporation process.

If your articles of incorporation don’t provide sufficient information regarding who is authorized to sign, you may also need an additional corporate document that does. If you’re operating as a nonprofit, you’ll also have to show your 501C letter from the IRS or other tax-exempt documentation. Businesses that need a license will also need to provide their license documentation.

S-Corporation

You are an S-Corporation if you have filed articles of incorporation with the state, are in good standing, and have elected S-Corporation status. If this is the case, when opening a business bank account, you’ll need to show your Federal Employee Identification Number (EIN) and either your certified articles of incorporation or corporate charter.

In addition, you might also need to show a signed corporate resolution by all of your officers as well as a signed signature card by the account signers. Like a C-Corporation, you may have to provide an additional corporate document as well as your business license if you’re required to have one.

Importance of Opening a Business Bank Account

Opening a business bank account is important because it can help separate business and personal funds. However, as little as 25% of small business owners use their personal bank account for business purposes. Commingling your business and personal expenses like this can cause a lot of problems. What’s more, a business bank account can help with bookkeeping, liability, and cash savings.

• Bookkeeping – Opening a business bank account can help you separate business and personal expenses and better keep track of cash flow and budgeting.
• Preserve limited liability – Limited liability corporations (LLCs, C-corps, S-corps) can protect their owner’s liability better if they use a business bank account.
• Save money – Tracking business purchases and deposits in a separate bank account can help you manage budgets and better file taxes (including deductions)

Although it may seem easier to just use your personal bank account for business, taking the time to get a separate business bank account is definitely worth it.

Bottom Line

Opening a business bank account is a good decision for business owners. However, before you open one, you need to identify the right type, the right bank, as well as the associated costs and fees. What’s more, you’ll also typically want to have all the necessary documents and information prepared before you apply. The result will be a more efficiently run business.

If you are looking for a good business checking account, take a look at Chase Bank. They have low monthly account fees, one of the largest branch/ATM networks nationwide, and have some unique perks (like unlimited monthly cash deposits).

Visit Chase