Business savings accounts

There are many financial facets to running a business, with cash flow, payroll, and materials offering just a few things to think about. While a good current account makes day-to-day operations more efficient, a business savings account offers the opportunity to earn interest on capital reserves. It can also provide access to other handy business tools, such as long-term investments with even better savings rates. 

This guide explores key aspects of business savings accounts, including different account types, tax implications, eligibility criteria, and how to choose the best savings account for your business. 

A business savings account, also known as a company savings account, is just like a personal savings account, but it’s only for businesses. This type of savings account typically offers more competitive rates of interest than a business current account. Another perk is that, unlike most business current accounts, banks generally don’t charge a monthly fee for business savings accounts. A business savings account is best suited for saving over the long term, not for everyday transactions, which are better handled by a business current account. 

As with personal savings accounts, there are different types of business savings accounts, including the following:

• Easy access business savings accounts

• Business notice accounts

• Fixed rate business savings accounts 

Business savings accounts tend to offer more competitive interest rates than business current accounts, often earning you more on the extra cash you have in your business. A high-yield business savings account not only allows you to maximise the returns on your extra cash but also serves as a valuable resource for unforeseen challenges your company may face.

Having a business savings account can help ensure you’re prepared for any kind of crisis that may hit your company. It can act as an emergency fund for instances such as losing an employee, repairs and maintenance on the business premises, or purchasing new tools and equipment. 

When deciding on a company savings account, it’s important to consider how quickly you might need access to these funds. This will determine the most suitable type of business savings account for your needs. 

There are several types of business savings accounts available, and each tends to provide a different level of access to your cash. Here’s an overview of three common types:

Easy/instant access business savings accounts

Designed for convenience, these accounts allow you to withdraw cash as needed without stringent conditions. However, the interest rates offered on business savings accounts with easy access may be less competitive compared to other account types.

Business notice accounts

Offering a middle ground, notice accounts provide competitive interest rates with the condition that you give advance notice for withdrawals. The notice period can vary, typically ranging from seven to 180 days.

Fixed rate business bonds

Ideal for businesses with a long-term savings strategy, fixed rate business savings accounts offer a set interest rate for a specified period. You aren’t typically allowed to make withdrawals during this period, but in return for this limited access, you’ll likely earn a higher interest rate.

Each account type can also stipulate its own opening criteria, such as a minimum opening deposit, and this can vary between providers.

If you own and operate a limited company, it exists as its own entity and money made by that business is separate from your own personal finances. This is why certain tax implications can arise if you were to transfer cash from that business into your personal savings account. The solution to this is to have a company savings account just for your business finances. If you’re a sole trader, this doesn’t apply to you, because you and your business are the same entity. This means you can deposit your business earnings directly into a personal savings account. It could still be wise to have a high-interest business savings account, however, as it can serve as an emergency fund or a reserve for setting aside funds to pay your self-assessment tax return.

If you run a micro, small, or medium-sized business and bank with an institution that holds a UK banking licence, your money will be protected under The Financial Services Compensation Scheme (FSCS) up to £85,000 in total across all accounts held in your business name, per banking institution.  

However, there are some caveats to this. For example, financial organisations, public and local authorities are not protected.

Is it worth having a business savings account? Your decision will ultimately depend on your company’s financial situation and individual needs. These pros and cons might help you to evaluate the value a business savings account may bring to your business financial strategy:

Advantages:

• Competitive interest rates: Business savings accounts typically offer higher interest rates, making your money work harder than it would in a business current account.

• Sign-up perks: Some account providers offer perks when signing up, such as exceptionally high interest rates for a specific period.

• Choice of accounts: You can choose from various accounts, including easy access and fixed term, to best suit your accessibility needs.

Disadvantages:

• Limited access: Business savings accounts may restrict access to funds, particularly in fixed-term accounts, potentially preventing you from making quick withdrawals.

• Opening criteria: Different accounts stipulate diverse opening criteria, including minimum deposit requirements, that can affect your suitability and make it harder to open an account.

• Interest rate fluctuations: Business savings account rates, while generally competitive, can still be subject to market fluctuations, impacting overall earnings.

Interest on business savings accounts is paid gross. This means you have to ensure any interest you’re paid is taxed appropriately. The amount of tax you’ll pay depends on what type of business you have and how much interest you earn.

For example, if you’re registered as a limited company, you’ll need to establish whether you’re liable for any corporation tax. As a sole trader, you can factor in your personal savings allowance.

To be eligible for a business savings account, you’ll need:

• To be UK-based

• All owners, directors and account users to be at least 18 years of age

• To have an existing business current account

Keep in mind that the only way to transfer money into (and out of) a business savings account is via a business current account. This may require you to hold a business current account with the same bank or financial institution you’d like to open a business savings account with. Alternatively, you can nominate a current account when you open your business savings account, and it doesn’t necessarily have to be with the same provider. 

Certain company savings accounts are only available to specific types of business. For example, some are only open to limited companies and not sole traders. Alternatively, they may be limited to specific business sectors, such as charities.

If you’re thinking of opening a business savings account, it’s important to consider all options before you apply. Questions to ask yourself include:

• Do I want a more competitive rate of interest or greater flexibility? Opting for the best business savings account rates often means accepting more restrictions. Assess your cash flow and consider whether tying up surplus cash in fixed rate business bonds, with higher interest but limited access, suits your needs. Alternatively, you might prioritise flexibility with a business easy access account. What type of access do I need? Account features and transaction methods vary among account providers. Methods include in-branch, via post, or online via a desktop or app. If online banking is essential for you, make sure it is available for managing your account before you commit.

• Does the minimum balance suit me? You’ll usually need to deposit a minimum balance to open a corporate savings account, and it’s important to maintain this balance to avoid potential charges in case it falls below the specified amount.

• Are there any opening restrictions? Explore any opening restrictions on the account. Consider factors such as the specific types of businesses eligible (sole or limited trader) or any sector-specific limitations (e.g. charities). Ensure your business meets these criteria before starting the application process.

Many business savings accounts can be opened with a formal application and operated remotely, thanks to online banking. This allows you to access your account 24/7 from wherever you might be, which is often a great tool for businesses. 

However, if you’d prefer to have an in-branch relationship with your account provider, there are still some banks that welcome in-person applications and management.