Types of Business Bank Accounts

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on September 08, 2023

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Types of Business Bank Accounts

Running a successful business involves juggling a lot of responsibilities, one of which is managing finances. This involves making decisions about which business bank accounts to use.

Business Checking Account

Overview and Purpose

A business checking account is a fundamental tool for managing and organizing your business's finances.

It is primarily used for everyday transactions such as depositing revenues, paying bills, and handling payroll. Separating your business transactions from personal ones is essential for clear financial tracking and record-keeping.

Features and Benefits

Business checking accounts typically come with features like online banking, mobile check deposits, debit cards, and overdraft protection.

Some also offer rewards or interest. Additionally, having a dedicated business account lends credibility to your business and simplifies tax preparation by keeping your expenses distinct.

Potential Limitations and Fees

However, many business checking accounts come with fees. These might include monthly maintenance fees, transaction fees, and ATM fees.

Some banks may waive these fees if you maintain a minimum balance or meet other requirements.

Business Savings Account

Overview and Purpose

A business savings account is designed to hold funds not immediately needed for operations. This could be money set aside for emergencies, future investments, or unforeseen expenses.

Features and Benefits

These accounts generally earn interest, helping your business grow its savings over time. They also offer liquidity, allowing for relatively easy access to funds when needed.

Potential Limitations and Fees

There are usually limits on the number of transactions you can make from a business savings account per month. Exceeding these can result in fees. Also, the interest rates on savings accounts are typically low compared to other investment options.

Merchant Services Account

Overview and Purpose

A merchant services account is a type of bank account that allows a business to accept electronic payment methods, like credit and debit card transactions. It's essential for businesses that conduct sales online or want to offer customers non-cash payment options.

Features and Benefits

Aside from facilitating card payments, these accounts often come with additional services like payment gateways for online business, point-of-sale systems, and fraud protection.

Potential Limitations and Fees

One potential downside is that merchant services accounts usually come with processing fees for each transaction. The fee structure can be complex, depending on the contract with the provider.

Business Money Market Account

Overview and Purpose

A business money market account is a type of savings account that typically comes with a higher interest rate than regular savings accounts, especially if you can maintain a higher balance.

Features and Benefits

Money market accounts often come with check-writing privileges and a debit card, which is not common for savings accounts. These features provide greater accessibility to funds while still earning interest.

Potential Limitations and Fees

There may be a higher minimum balance requirement compared to other accounts and falling below this minimum can result in fees. The number of transactions you can perform each month might also be limited.

Business Certificate of Deposit (CD)

Overview and Purpose

A business certificate of deposit (CD) is a time-bound savings account that offers a fixed interest rate. It's suited for businesses with excess cash that they don't expect to need until the CD matures.

Features and Benefits

CDs often offer higher interest rates than savings or money market accounts. They're also low risk, as they're insured by the Federal Deposit Insurance Corporation (FDIC) up to the legal limit.

Potential Limitations and Fees

The primary limitation is the lack of liquidity. Early withdrawal from the CD will usually result in a penalty, which can eat into your interest earnings.

Business Credit Account

Overview and Purpose

A business credit account, or business credit card, is designed to cover business-related expenses. It can help manage cash flow, cover unexpected costs, and separate personal and business expenses.

Features and Benefits

Many business credit cards come with rewards programs, offering points, cash back, or travel rewards. They also often include benefits like free employee cards, expense tracking tools, and travel protections.

Potential Limitations and Fees

Interest rates on business credit cards can be high, especially if the balance isn't paid off each month. Some also charge annual fees. Misuse of a business credit card can also lead to debt that can harm your business's financial health.

Business Loan Account

Overview and Purpose

A business loan account is where your business loan resides once it has been approved and disbursed. It can be critical for funding major business expenses like starting up, expanding, buying equipment, or managing cash flow.

Features and Benefits

A business loan can provide a large influx of cash to cover substantial costs. It also offers a structured repayment plan, which can make budgeting easier.

Potential Limitations and Fees

Interest rates and loan origination fees can add to the cost of borrowing. A business loan also usually requires collateral, which can be seized by the bank if you default on the loan.

Types of Business Bank Accounts

How to Choose the Right Type of Business Bank Account

There's no one-size-fits-all answer to which types of business bank accounts you should have. It depends on your specific situation, including the size and type of your business, your financial needs and goals, and your expected transaction volume.

Factors to Consider

A startup might benefit from a business checking account and a business credit account to manage daily expenses and start building credit.

A more established business might also consider a merchant services account for handling customer transactions or a business loan account for expansion.

Consulting With a Financial Advisor or Bank Representative

Given the complexities of banking products and the individual needs of each business, consulting with a financial advisor or bank representative is often a good idea.

How to Open a Business Bank Account

Opening a business bank account involves providing the necessary documentation, which might include your Employer Identification Number (EIN), business license, and formation documents. You also need to decide who will have access to the account.

  • Required Documents and Information: The exact documents needed will depend on your business structure and the specific bank's requirements. In general, you'll need to show proof of your business's legal existence and your authority to manage its finances.

  • Process of Opening an Account: After gathering the necessary documents, you can apply for the account either in person or online, depending on the bank. The bank will then review your application and, if approved, provide account details and materials.

  • Maintenance and Management of the Account: Managing your account well involves regularly monitoring your balance, reviewing account activity for accuracy, and keeping your business information up to date with the bank.

Potential Issues and Challenges With Business Bank Accounts

Despite the benefits, business bank accounts can present some challenges. Understanding these can help you make the most of your accounts.

  • Fees and Service Charges: Many accounts come with fees. However, banks often waive these if you meet certain requirements, like maintaining a minimum balance or making a certain number of transactions.

  • Balance Security and Accessibility: While it's important to keep your funds secure, you also need to be able to access them when necessary. This balance is crucial in managing your accounts effectively.

  • Understanding and Managing Cash Flow: Proper cash flow management is critical for a business's survival. Regularly monitoring and managing your accounts can help ensure you have enough money to cover your expenses.

Potential Issues and Challenges With Business Bank Accounts

Bottom Line

Understanding the types of business bank accounts and their features, benefits, and potential limitations is vital in effectively managing your business finances.

From everyday transaction handling with a business checking account to long-term savings in a CD, each account serves unique purposes in supporting your business's financial health.

However, they come with potential challenges, like fees and accessibility issues.

Therefore, careful selection based on your business's specific needs, regular monitoring, and proficient management of these accounts are key to optimizing your financial operations and overall business success.

Types of Business Bank Accounts FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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