Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.
In an uncertain economic climate, businesses are under more pressure than ever to make money and save money. There are numerous ways to do this, from utilising software that eliminates wasteful spending to implementing more green initiatives to reduce operational costs and your carbon footprint.
But did you know that your choice of business bank account can also make a difference to your company’s financial health? In fact, it’s essential to choose the correct business savings account to grow capital from your accrued profits. We look at everything SMEs need to know in order to choose the best business savings account for their cash flow needs.
What are business savings accounts and why do I need one?
A business savings account is much the same as a personal savings account. It acts as a place to store funds at a better rate of interest than a current account, helping your business grow its wealth. However, combining your business and personal finances is one of the biggest faux pas of small business finance. If you are a sole trader, it can muddy the waters between the company’s money and your personal funds. Furthermore, if your business is incorporated, it is a legal requirement to open separate business accounts. Business savings accounts can only legally be used for business savings and therefore business owners may not deposit their personal funds into these accounts.
Please note that all interest paid on business savings is gross interest. Therefore, the company is responsible for any tax payable on their savings.
Different types of business savings account
Business savings accounts are broadly divided into three categories. These are as follows:
Fixed-rate business savings accounts – Also known as a fixed-rate bond account, this is a high-interest business savings account that offers a fixed interest rate for a set period. After this period has elapsed, the rate usually drops.
Easy access business savings accounts – These accounts allow businesses to withdraw funds from their savings account at will. Rates are therefore significantly lower than other savings accounts, though still more favourable than business current accounts.
Notice business savings accounts – Here, account holders must give notice before withdrawing funds from their business savings account. This period may be anywhere between a week and six months.
What should I look for when I compare business savings accounts?
Finding the best small business savings account for your SME is a matter of choosing the best fit for your needs. If businesses want to secure the best business savings rates, they will inevitably have to compromise on the accessibility of their funds. Likewise, if the company needs to keep funds accessible to ensure liquidity, business leaders may have to resign themselves to lower rates of interest.
When you compare business savings accounts you should consider:
What is the interest rate offered?
Can I access funds in a suitable time frame?
Is there a minimum deposit required?
Is there a maximum threshold for how much I can deposit?
How easy is it to access and manage my account?
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6 best small business savings accounts
Below are some of the top business savings accounts from reputable lenders. We look at the features of each and how they may align with your business needs and goals.
Best business savings rates for short-term: Aldermore
If you want the best business savings account rates without a lengthy commitment or notice period, the 6 Month Fixed-Rate Savings Account from Aldermore may be a good fit. It has a gross annual interest rate of 2.50% with a minimum deposit of £1,000. The account has a cap of £1,000,000 making it a good fit for small businesses. The account can easily be managed online, over the phone or by post.
Best instant access business savings account: Shawbrook Bank
Businesses that want to gain quick access to their capital at the best interest rate should consider the Easy Access Business Account Issue 10 from Shawbrook Bank. This has an interest that is a cut above its competitors at 2.02% with no fixed term and no notice period. The account can be managed online or by post, making it easy for businesses to take control of their savings.
Best small deposit business savings account: Newcastle Building Society / Virgin Money
Small businesses and news startups may only have a modest amount to deposit, but still want to get an interest rate that makes their money work harder for them. There are two great options, depending on how readily business owners want to be able to access their money,
The first is Newcastle Building Society’s Online Business Saver. This is an online-only account that requires a minimum deposit of only £1 and provides easy access to funds. If, however, businesses are prepared to provide a relatively long notice period, Virgin Money’s 120-Day Notice Business Account also requires a minimum deposit of £1 and has a very respectable interest rate of 3.04%. This account is accessible online via desktop or mobile app.
Best fixed-rate bond business savings account: Union Bank of India (UK) Ltd.
Business owners who are happy to let their savings mature without access have a number of fixed-rate business savings accounts to choose from. As with a personal savings account, the longer the savings take to mature, the more favourable the interest rate.
Union Bank of India (UK) offers a 4 Year Fixed Rate Deposit account with an interest rate of 4.45% – the same rate as its 5-year fixed-rate bond. However, this account cannot be managed online and a minimum deposit of £1,000 is required. It can only be managed by post, via e-mail or in-branch.
Best business notice savings account: Allica Bank / United Trust
As with fixed-rate business savings accounts, the longer the notice period on a business notice savings account, the more favourable the interest rate. As such, business owners will need to find the right balance between growth and liquidity for their circumstances. However, those that are happy with a long notice period will favour Allica Bank’s 180-Day Notice Savings Account Issue 1. This has a robust interest rate of 3.2%. This account can be managed, online, over the phone, by post or via mobile app, although its minimum deposit of £10,000 may be prohibitive for smaller or newer businesses.
Best business savings account (all-rounder): The Cumberland
Finally, if you’re looking for a good all-rounder that has a good interest rate as well as flexible terms and a modest minimum deposit, The Cumberland Building Society’s eSavings Issue 4 account is a good place to start.
It is a variable-rate business savings account that offers an interest rate of 2.6% yet requires a minimum deposit of just £1 with no notice period. It is an online-only account that can be managed via desktop or mobile app making it an excellent choice for savvy small businesses.
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