Have you started calculating additional working capital in your company’s annual revenue? Is your business just getting off the ground, and you want to plan? Regardless of your situation, business savings accounts are a great way to store, protect, and grow additional funds. But where do you begin? Let’s start with learning the difference between a business checking and savings account, the various types and purposes of business savings accounts, and easy ways to compare when making your decision. Read on to learn more.
What Is a Business Savings Account?
A business savings account operates very similarly to a personal savings account, meaning it’s an account you open with your bank to store extra funds while gaining interest over time. With a business savings account, you’ll be able to make deposits and withdrawals as needed. Still, it’s not unusual for the bank to require a minimum deposit to open an account. Along with a minimum deposit, you will also need to maintain a specified balance. There may be limitations regarding the number of withdrawals and account actions taking place within a given month.
If your business is flourishing and you’ve found yourself having extra funds, opening a business savings account is highly recommended as it’s a great way to keep your money safe. However, you must make sure you have enough funds in your business checking account to pay monthly expenses, operating fees, and more.
Business Checking vs. Business Savings
It’s best if business checking and business savings accounts are used in tandem as there are substantial differences between them. As a small business owner, you’ll begin considering opening a business savings account once your accounting software shows that you have extra funds and your business checking account is established. There are many differences between these two business account types. However, two details tend to lead:
- Funds in your business savings account gain interest over time, unlike those in a business checking account
- Access limitations to business savings account funds are common, whereas you can access those in your business checking account at any time
A business checking account can be viewed as an effective tool to separate your business and personal finances, while a business savings account is what will set your business up for success down the road once additional funds are available.
Types of Business Savings Accounts
Many business owners find simple business savings accounts effective as they’re usually the most liquid and accessible. A simple business savings account allows you to withdraw from your account as needed while earning interest on your funds. You will also not have limitations regarding how long your funds have to sit in your account before any withdrawals. While simple business savings accounts tend to do the trick, there are a few others that are worth considering, such as:
- High Yield Business Savings Accounts: By choosing a high yield business savings account, you’ll be able to store your funds, earn interest, access your cash, and make deposits and withdrawals. However, the annual percentage yield (APY) or interest rate for high yield business savings accounts is substantially higher than your regular savings account. High yield business savings accounts have stricter requirements, like monthly fees, minimum balance restrictions, and more.
- Business Certificate of Deposit: Through this savings option, you’ll be offered high interest rates but will be limited as to when you can access your funds. If you know you don’t need a set amount of funds for an allotted time frame, a business certificate of deposit is an excellent option. You’ll make a specified deposit, choose a term length, and over that time frame, interest will be earned on your savings.
Helpful Ways to Compare
It can be complex and time-consuming to find the best business savings account for your unique needs – especially when each has its own set of terms. While there are many ways to compare business savings accounts, the factors below are a few of the most useful to consider when making your decision.
Annual Percentage Yield (APY)
The main benefit of having a business savings account is accumulating more money over time by storing excess capital in an account that gains interest. When choosing your business savings account, you must consider the Annual Percentage Yield (APY). This indicates the total return or interest you can expect to receive on your account per year. Every business savings account interest rate differs, meaning the rate can be fixed or variable and compound daily or monthly. Below is an example of how APY affects the funds in your business savings account each year:
Account Balance x APY = Yield
$45,000 x 0.60% = $27,000
Service Fees & Minimum Balances
There are many different business savings accounts available for business owners, and while some of them are free, many require you to pay a service fee. The bank or provider managing your business savings account will most commonly require you to pay a monthly service fee. The amount can vary depending on the type of business savings account, bank, and account provider. However, it’s recommended to thoroughly review your business savings account’s details as many offer a way for you to get service fees waived.
While it’s not unusual for business savings accounts to require a minimum amount of funds to open the account, you’ll likely be required to maintain a minimum balance too. It’s vital that you’re aware of both minimum deposit and balance, as holding the minimum balance may help you avoid unwanted service fees.
Fund Accessibility & Customer Support
As a business owner, access to your funds and customer support is vital. It’s essential to consider both of these factors when choosing your business savings account. If you prefer face-to-face customer support, an online business savings account provider may not be the best choice. Instead, you should choose a bank that’s local to your area so you can speak to a person directly when questions come up about your savings account. You also might need to access the funds in your savings account unexpectedly for various reasons, from inventory shortages and building repairs to business opportunities and more. Because of this, considering fund accessibility is highly recommended.
A business savings account is designed for storing extra funds rather than spending like a business checking account. Because of this, many banks and account providers create guidelines, so your funds are less accessible. Once your business is established, you shouldn’t have to rely on your business savings account funds. When choosing the best business savings account for your company, take time to consider how often you expect to withdraw from the account as many have limits and associated withdrawal fees that can add up quickly.
ATM Usage & Wires
Many business savings accounts allow you to withdraw from your savings account through any ATM. However, others may charge a fee if the ATM isn’t connected with the bank itself. Whether you’ll often be traveling or find an ATM more convenient, it’s essential to consider how each account provider handles this usage functionality.
Wires are also another essential feature to consider when choosing your business savings account. You should verify whether domestic and international wires can be sent and received as well as how they’re handled. Some business savings accounts allow a specified number of free wires each month, while others charge a fee for wires both sent and received. If you’re going to be receiving and sending a lot of wires, you may want to choose a business savings account that doesn’t charge fees for these services.
Open Your Business Savings Account Today
At the end of the day, you know your business better than anyone else. You’ll know when it’s time to start considering opening a business savings account and which will meet your company’s unique needs. There are numerous types of business savings accounts offered by banks and account providers today. Whether your business has established a business checking account and you have extra funds or want to do research early on, you must consider all account benefits when making your choice. Open your business savings account to set your company up for future success.