The Basics of a Business Checking and Savings Account

A business owner reviews paperwork at their desk with a laptop and smartphone.

This article is for educational purposes and does not constitute legal, employment, or tax advice. For specific advice applicable to your business, please contact a professional.

Seventy-one percent of small business owners surveyed have a business savings account, according to a survey Square commissioned from Harris Insights & Analytics. Despite this, a lot of these accounts see little activity, with small business owners often leaving the account with just the minimum balance.

When you’re thinking about opening a business, everything from the bank where your funds are to business loans and other services are encompassed under the umbrella of business banking. These solutions and tools are specifically geared towards businesses, as opposed to services you may need as an individual for personal use. When it comes to checking and savings, small business owners may have different goals for their businesses than they do for their personal wealth.

Of the small business owners surveyed, 63% opened a business account when they first started their business. If you are a small business owner just getting started, this might just be the perfect time to consider a business checking and savings account.

Business savings accounts

Business savings accounts are generally used for storing money and earning interest. Oftentimes, banks will waive monthly fees for business savings accounts if a minimum monthly balance is met.

For small business owners looking to save for an emergency fund or retirement, a savings account may be better suited to meet those needs. Of the top three reasons small business owners say they have a savings account, 23% said for unexpected expenses, 15% for an unexpected downturn in business, and 14% to save for tax payments.

Of our surveyed small business owners, here is what they say is their savings approach for their business:

  • Save a percentage of revenue at regular intervals: 37%
  • Save when I am able to: 37%
  • Save a specific dollar amount each week or month: 16%
  • Save towards a specific amount: 8%
  • Other: 2%

There are a variety of reasons you might want to save for your business, such as retirement, large purchases, getting out of debt, or hiring. Small business owners can save money as they go, perhaps building up enough for an emergency fund by putting away what is possible every month, or they may instead put all their savings into an account at once to maximize interest rates or work towards a retirement goal.

Criteria to look at when you consider opening a business savings account include FDIC insurance, interest rates, fees, and intro promotions. Common account fees that you’ll want to keep an eye on include monthly or maintenance fees, ATM fees, and fees associated with dipping below the minimum balance. Annual percentage yield (APY) can be a differentiator between different saving account options as this is the percentage that lets you know how quickly you can grow the amount of money in your account.

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Business checking accounts

Business checking accounts are used more for day-to-day transactions like purchases or bill payments. These accounts allow you to make deposits and withdrawals, and can offer checks and debit card capabilities. Deposits can be made using ACH, wire transfers, cash, and other electronic fund transfers (EFT). Often banks will waive monthly fees for business checking accounts if a minimum monthly balance is met.

When looking for a business checking account, there are a variety of ways to decide where you’d like to bank. Minimum balance requirements, interest rates, and deposit and transaction limits, as well as if a bank has physical locations or online and mobile banking options, are all factors that may weigh into your decision. Additionally, when it comes to a business checking account specifically, you may also want to look at employee debit cards.

Business checking vs. savings accounts

While many banks incentivize account holders to have both savings and checking accounts at the same bank, there are some differences between account types to keep in mind. Features of business savings and checking accounts vary from bank to bank, however, many business bank accounts offer additional benefits that a personal account might not. Fees, minimum balance requirements, and interest rates are all different from bank to bank so be sure to check with your bank for more information.

To open a business checking account you’ll need an Employer Identification Number (EIN); business formation documents, depending on your business’s ownership structure (sole proprietorship, LLC, or corporation); and a business license.

  Business savings account Business checking account
Withdrawal limits 6 withdrawals or transfers per month None
Interest rates 0.4–2% APY¹ 0.01–0.5% APY²
Minimum balance requirements $0–$100+⁴ $0–$100+²
Cash deposits No limit Varies by bank; cash deposits may be limited as well as monthly free transactions

As of April 24, 2020, the Federal Reserve has instituted an interim final rule to amend the six-per-month limit on transfers. The rates for both business savings and checking accounts vary from bank to bank. For example, Wells Fargo offers a business savings account with a $5 monthly fee, which can be avoided with a $300 daily minimum. Chase offers tiered savings account options — one has a $10 monthly fee that is waived if a minimum ledger balance of $1,000 or more is maintained in a linked Chase Business Complete Banking account. Minimum balance and rates vary for both types of accounts by bank.

Keep in mind that up to $250,000 in each of your business savings and checking accounts is covered at an FDIC-insured bank. Deposits held in different ownership categories are separately insured, even at the same bank.

Consumer savings have increased during the COVID-19 pandemic as Americans have set more of their income aside for emergencies. Small business owners may want to take note when thinking about how savings might play a role in the growth of their business going forward.

For many small businesses a checking and savings account is essential. By opening these accounts, you can pay bills, pay employees, and receive payments as well. If you’re just starting a business or manage your cash flow more actively, think about how these financial tools can help you best grow your business.

Sources
1. Business Savings Accounts: The 7 Best High Yield Business Savings Accounts
2. Average Checking Account Interest Rates 2020
3. Understanding Federal Reserve Board Regulation D
4. Savings Account Fees: What They Are and How Much They Cost

Methodology

The data for this analysis includes Square sellers and non-sellers that were owners or co-owners of small businesses across the U.S. with a revenue of $30,000 to $2 million. This survey, commissioned by Square, was conducted by Harris Insights from May 14-21, 2020. The survey included businesses with a range of industries, location (urban, suburban and rural), employee size (less than five and five more more) and business age (less than three years and three years or more).