You may be wondering why you should be using a business savings account instead of a business current account. Well, the answer is simple – it’s because business savings account rates are far higher than those that can be found for current accounts, and therefore offer a far better home for any surplus funds.
It goes without saying that you'll still need to make sure you've got a suitable current account that can meet your business requirements, and that you'll need enough left in it to cope with general business expenditure. But why leave any excess cash languishing in it to earn paltry rates of interest? Compare business savings account rates with those of current accounts and you'll soon see why it's worth separating your funds.
The fact that these accounts are essentially a business arrangement also means depositor protection may be different. Money held in a business savings account will only fall under the protection of the Financial Services Compensation Scheme (FSCS) if you're a small business, which means your firm has to meet the following definition:
If not, you're categorised as a larger business, and as such won't be covered by the scheme (which protects the first £85,000 an eligible business has under a single UK banking licence).
However, that's not to say you won't have any protection. Savings providers are regulated by the Financial Conduct Authority no matter if they deal with businesses or individuals, which means you have certain rights that keep your money safe. Of course, you'll still need to make sure you've got the right account; knowing what's out there is vital.
To find out more about depositor protection, click through to our guide on the subject.
Much like with personal savings accounts, those of the business variety can generally be separated into two categories: variable accounts and fixed rate bonds. Keep in mind that there's nothing stopping you from having one (or more) of each type of account, as there is no limit to the number of business deposit accounts you can have.
Variable business savings
Variable rate accounts are typically easy access or notice varieties, and which one you choose will depend on your business needs. Easy access business savings accounts allow instant access to your funds in case of an emergency, whereas notice versions will require you to give notice to your provider before you can make a withdrawal, the trade-off being that you'll usually get a better interest rate – however, the key word here is 'variable', which means providers can change the rate on both of these account types at any time.
They each have their benefits – easy access savings accounts allow you to get your hands on any surplus cash instantly, and you'll generally be able to make as many deposits and withdrawals as you'd like, with most having low minimum balances and few withdrawal restrictions. They don't pay the most competitive rates, but for flexibility, they can't be beaten.
Business notice accounts, on the other hand, come with a few more restrictions, with notice periods typically varying from 30 days to 120. Some will allow you to access funds earlier, but there'll usually be a penalty, often in the form of reduced interest. That's why it's important to be truly organised with business notice accounts so you can give the notice period required, but for expenses such as tax bills – when you know the payment date and can plan your withdrawal accordingly – they could be ideal.
It's important to consider how much access your business might need to any saved funds before choosing an account, or you may want to split your deposits between several options to get the right mix of access and potential returns. You may even be focused on long-term growth and don't mind keeping a portion of business funds totally out of reach for a few years, in which case business bonds could be ideal.
Business fixed rate bonds
Business bonds work in much the same way as fixed rate accounts for personal use, in that you can choose between a variety of terms and secure different interest rates accordingly. Generally speaking, the longer you're willing to lock funds away for, the higher the interest rate you'll receive, but you'll need to make absolutely certain you won't need access to your business' funds for the duration of any fixed term.
Terms typically range from one to three years and its very rare that providers will allow you to make any withdrawals before the maturity. You generally won't be able to add funds to such accounts, either, which means they're only suitable for businesses that wish to lock a lump sum away.
The trade-off for this complete lack of flexibility is that the rates on business savings bonds tend to be far better than their variable rate counterparts, and the rate is guaranteed, too, so you know exactly what your return will be by the end of the term.
Still confused about the various savings terms? Try our savings guide hub.
The key to getting the best business savings account for your specific business is to compare the options thoroughly, and that means considering everything from the headline rate to the smaller details of the account. Each one comes with different features, but here are a few general things you may want to bear in mind:
It's these kinds of things you'll need to think about when comparing business savings accounts, so you can make sure you're getting the deal that meets your needs.
Start the process by using our search tool above. You can use the resulting charts to find the best business savings rates and products across the market, complete with details of all essential features, helping you to compare the options on a like-for-like basis and ultimately ensure you make the right decision for your business.
Tax implications will be different than for individual savers, as most businesses that are not sole traders don't get a personal savings allowance. All interest is paid gross, which means that you'll need to account for any interest received so it is taxed appropriately.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.