How to compare bank accounts for small businesses
Getting the right bank account can help take the stress out of organising your business' finances. It can also make it easier to track and control expenses and cash flow. However, not all bank accounts are suitable for small or medium size businesses.
- Types of bank accounts for businesses in the UK
- How do I compare bank accounts for small businesses?
- How do I open a bank account for a small business?
- Are small business accounts protected by the FSCS?
- 5 tips when looking at bank accounts for small businesses
Many business bank accounts have caps on transactions and balances, which can be limiting. There are costs and features to consider. And not all business current accounts are covered by the Financial Service Compensation Scheme (FSCS), which does offer some protection should your bank go under.
So, how do you compare and find the best business bank account for your business? First, decide what type of account your business needs.
Types of bank accounts for businesses in the UK
Whether you are starting a new business or the owner of a small to medium-sized enterprise (SME), not all business bank accounts will be suitable. Here is a quick summary of the main types of bank accounts for businesses in the UK:
Bank accounts for sole traders
Sole traders are normally freelancers, self-employed, or persons starting a side hustle and are solely responsible for their business. If this is you, generally, you’re not required to have a separate business bank account in the UK. However, keeping business transactions separate from personal transactions may have some benefits. For example, it makes monitoring cash flow, expenses, and filing tax returns easier.
Normally, sole trader bank accounts are easier to apply for and work similarly to a personal current account. But they will have fewer features than business accounts for bigger businesses.
Business Current Accounts
These bank accounts are more suitable for SMEs and will have added features to support your business's day-to-day financial needs. These can include overdrafts and higher withdrawal and deposit limits. If you’ve set up a limited company or similar, then you are required to have a business bank account (your account cannot be run from a personal bank account).
If you decide on this type of account, it might be worth checking if the bank offers business loans - you never know whether you’ll need funding to grow in the future. Business loans are different to personal loans; normally, these require you to put up some form of collateral (sometimes personal assets) as security. As with all forms of credit, there are risks, and it is important to make sure your business can afford the repayments.
Business Savings Accounts
Business savings accounts are similar to personal savings accounts and offer competitive interest rates on cash deposits. They are not for day-to-day transactions but are designed to save money in the long term.
How do I compare bank accounts for small businesses?
Whether you’re looking to open an online business bank account or a business account at a local branch, look for features that can benefit you and your business. And, of course, when you compare business bank accounts, check the fees, too. Here are a few things to factor in:
Account fees
Check for monthly account fees, transaction fees, overdraft fees, and charges for additional services such as foreign exchange fees and additional debit cards. Some accounts for small businesses and sole traders have no monthly fee and are advertised as free. However, these often come with limits, and charges can be applied when these limits are exceeded.
Transaction and balance limits
Look for any limits on the balance you can have and the number of monthly transactions or cash deposits you can make without being charged.
Overdraft services
An overdraft can be handy, giving your business additional funds to keep it going during cash flow fluctuations. If you think you’ll need this, compare overdraft charges before applying.
International transactions
If your business often pays overseas suppliers or receives payments in foreign currencies, you should prioritise foreign exchange rates and fees in your search. For example, the Revolut Bussiness Account lets you hold over 25 currencies and offers competitive exchange rates.
Customer and business support
Some business accounts offer access to additional support, such as tax advice, legal support, and an emergency hotline. Banks like Handlebanken prioritise customer business support and provide a dedicated account manager, accounts are managed by the local branch.
Online banking
Most banking is done digitally, so it is worth reviewing the bank's website and app platform functionality and services. You can see what others think of the banks’ app by looking at the star ratings and reviews on the App Store (Apple) or Google Play Store (Android).
Other helpful features
Some business account apps, like the Tide Cashback Business Account, offer cashback. Others let you earn interest on a positive balance. There are also helpful tools for sending invoices, completing self-assessments, and using additional expense cards to track costs more easily.
How do I open a bank account for a small business?
Once you have compared and shortlisted the best business bank account options, check if your business is eligible to apply. For example, you may be required to hit a certain turnover amount. However, in most cases, opening a business account in the UK is relatively straightforward - especially if you’re a sole trader or sole director. Typically, you’ll need to:
- Send an application
This can be done either online or in-branch. You'll likely need a photo ID and proof of address from the company directors. Depending on the bank and your business, you may also need to provide your business registration certificate, partnership agreement, or articles of association. - Wait for approval
Your bank will perform security checks and potentially a credit check. They may contact you with additional questions or checks. However, most new business accounts can be opened on the same day. - Use your account
Once approved, you’re pretty good to go. Apart from having to wait a few days to get your bank card, you will be able to access most bank features and deposit money into the account.
Are small business accounts protected by the FSCS?
Cash deposited with an authorised bank or building society benefits from the Financial Service Compensation Scheme (FSCS). That means you could be compensated up to £85,000 in total across all accounts you hold in your business name should your provider fail, regardless of the size of your business.
Some businesses do not qualify to claim under the FSCS, and generally, these are financial services companies. But more importantly, not all bank accounts fall under the FSCS. Some institutions offer banking services but do not have a full banking licence.
For example, e-money accounts, which normally include prepaid card accounts and electronic wallets, are offered by Electronic Money Institutions (EMIs). EMIs are different from regular banks and do not fall under the FSCS. It’s worth checking how safe your money is, especially if the account holds large amounts. If you’re not sure, speak to your account provider to see if the FSCS covers you.
5 tips when looking at bank accounts for small businesses
Here are some final tips when looking at bank accounts for small businesses:
- Define what you really need
For example, determine your requirements for transaction volumes, overdraft limits, interest rates on savings, and more. This will also help you decide on the type of business account you need. - Check what others are saying
Check what other entrepreneurs and peers you trust say about a bank. You can also research online comments and reviews on a bank’s services. - Think about your future growth
You may need funding from your bank in the form of a business loan, overdraft and other forms of credit to grow your business. So, you may want to look for a bank that offers such services. - Make sure the rewards are worth it
Rewards and perks like cashback can come with additional fees. However, the cost should not outweigh the benefits. - Compare features and services
Some features and services can save you money and time. These can include ways to categorise transactions, legal advice, invoicing tools, and educational resources.
In conclusion
Running a business is hard enough. Your bank should not make it harder. Choosing the best business bank account for your small business should save money and time.
When comparing business accounts, first consider what type of business bank account you want by defining your needs. Then, look at the features banks offer and the costs to decide what suits your daily requirements and budget best.
Also, think about your potential future needs, such as funding. And ensure your cash deposits are covered by the FSCS. Finally, if you’re unsure about a business account provider, ask peers you trust for recommendations and check reviews online.
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