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What You Need to Know About Opening a Business Bank Account

What You Need to Know About Opening a Business Bank Account

Opening a bank account for your business is one of the most important steps you can take in protecting your personal assets and establishing credit for your business. Without it, growing your business can be difficult. Not having a separate bank account can make tax planning more convoluted and you could easily miss out on any business deductions and other potential tax breaks.

Running your business without a seperate account can also limit your ability to acquire financing, which could be vital as 73 percent of small businesses used financing in the last 12 months since July 2016, according to the Small Business Association.

"It’s nearly impossible to scale a business using personal funds alone, getting started on this the right way is important. A business can use its credit to access 10 to 100 times more financing than an individual person can," says Levi King, CEO and co-founder of Creditera.

If you apply for business funding, lenders will want to see your business bank statements to see what your cash flow looks like, he adds.Lenders will generally want to see a bank balance that is high enough to cover what would be your monthly loan payment.

There are several advantages to putting your company’s funds in its own account. For one thing it establishes credibility and clearly demonstrates that you’re serious about what you’re doing and your venture is no mere hobby. Therefore, a seperate account is critical.

Having a business bank account is a component of asset protection

Know however, that once a business account is set up, personal funds can not be put in it. If you don’t segregate personal and business finances you could run into issues with the IRS if you’re audited.

Another benefit of a business account is the enhanced ability to track business transactions, income and expenses. You’ll have a good picture of how your business is performing. This information is also handy when tax filing time rolls around.

Business accounts can have fewer fees than personal accounts and may include additional features such as credit card payment processing and payroll service (for a fee). A business account in good standing will not affect your personal credit. However, if you’re opening your business account as a sole proprietor using your social security number, the bank may check your personal credit score. A low score may prevent you from opening an account.

Choose your bank with care

There is no rule saying you have to keep your business account in the same place you keep your personal account. You’ll want to take your time and do your research on the bank and their experience in helping businesses in your particular field.

You should also carefully consider your goals and needs as it relates to using an online bank versus the typical brick and mortar. Generally speaking, online banks will offer higher APYs and lower overall costs. But some business owners prefer having the ability to speak with a business banker and build relationships versus calling a toll-free number.

You'll also want to plan ahead for check signing authority. Who will be allowed to act on the account, a partner or other staff?

Know too, that a corporate resolution or articles of incorporation must be provided to open a business account under a different tax id.

Review all fees and see how you can avoid them, such as maintaining a minimum account balance. Lastly, research the level of customer service before signing on the dotted line – it’s especially important for a business bank account.

Remember, your bank should be a partner.

To find the best interest rates on business accounts, please refer to the following DepositAccount.com rate tables: business savings accounts, business money market accounts and business checking accounts.

Opening a business bank account

Once you have decided what bank to go with, you will need the proper documents to open the account.

Depending on your state and business structure these documents may include: your corporate resolution, articles of incorporation, business license, and tax identification number. You can find a full list of documents on the Small Business Administration website.

Another decision you’ll need to make is the check-signing authorization. This designates the people who are allowed to write checks on behalf of the business. If you are the only person running the business, this will not be a concern for you but if you have multiple employees you will want to choose this person (or persons) wisely. As an additional level of protection, you could require multiple signers to authorized transactions.

In most cases, this prevents a single employee from making unwanted transactions. Opening the account will likely require the articles of incorporation or a corporate resolution if you plan on using the businesses employer identification number (EIN).

Lastly, you will want to read up on all the fine print including any fees for the account and what benefits you may have. Some business accounts may require to have a minimum balance while others may require a certain number of business transactions every month. Most banks tend to have better fraud protections that do not apply to personal accounts.

The best business bank accounts

Below is a list of the best business checking and savings accounts. We searched for banks with a national footprint, ranking them by annual percentage yield (APY) under the assumption of a $10,000 deposit. Many of the banks listed will be online institutions for the reasons stated above.

For a listing of banks in your local area, click here and be sure to change the search criteria to “local branches.”

*All rates are current as of 2/16/2018.

Business checking accounts

      1. Partner Colorado Credit Union - Business High Interest Checking (3.00% APY up to $10k)

      • Minimum amount to open: None
      • Minimum balance amount to earn APY: Up to $10,000
      • Account details: This account is great for businesses with low balances (up to $10,000). It does have a $5 monthly fee, but this can be waived by making 20 signature-based debit card transactions per month, opting in for eStatements, and using their online or mobile banking platform. There aren't any fees per transactions as long as you make 350 transactions or less per month. After that, it'll cost $0.15 per additional transaction. If you choose to use their online banking payroll processing system, there will be additional fees. If you withdraw money from an ATM, make sure it's part of their CO-OP network because you may be charged a fee if you use ATMs outside of their network.

      2. EverBank - Small Business Checking (1.21% APY)

      • Minimum amount to open: $1,500
      • Minimum balance amount to earn APY: None
      • Account details: This APY is for first time clients and only for the first year. EverBank will reimburse ATM fees paid at other U.S. ATMs so long as you maintain a minimum daily balance of $5,000.

      3. BofI Federal Bank - Business Interest Checking (0.80%)

      • Minimum amount to open: $100
      • Minimum balance to earn APY: None
      • Account details: This account has no monthly fee as long as you're able to maintain an average daily balance of $5,000. If that balance can't be maintained, they will charge a $10 fee monthly. There are no ATM fees as long as you use an ATM that is in their nationwide network.

Business savings accounts

      1. Community Bank of Pleasant Hill - Business Premier Money Management Account (1.19% APY)

      • Minimum amount to open: $25
      • Minimum balance amount to earn APY: None
      • Account details: There is a $10 monthly fee, but you can avoid this fee with $10,000. Withdrawals can be made on the 2nd and 4th Wednesdays of each month. If these days fall on a holiday, withdrawals will be allowed the following day. Any withdrawal exceptions will be charged a $25 fee. The bank states that the interest rate is tied to the U.S. Treasury: “The interest rate will not be less than the 13-week U.S. Treasury Bill index rate as published in The Wall Street Journal with an effective date of the 15th of the preceding month, less one quarter of one-percent (.25%).”

      2. First Internet Bank of IN - Regular Business Savings (1.16% APY)

      • Minimum amount to open: $100
      • Minimum balance amount to earn APY: None
      • Account details: The APY on this account will increase to 1.41% if you save more than $250,000. This account does have a $2 monthly fee, but you'll only need $1,000 to avoid this fee. An ATM card is only offered for sole proprietors only. You may withdraw from the account six times per month. However, if you withdraw more than six times per month, the excessive withdrawals will result in a $5 fee per additional withdrawal.

      3. Live Oak Bank - Business Savings - (1.05% APY)

      • Minimum amount to open: None
      • Minimum balance amount to earn APY: None
      • Account details: This account does not have a monthly fee. There is a dormant account fee if there is less than $10.01 and no activities for 24 consecutive months. The amount of the fee will be the account balance or $10.00, whichever is less. The account will then be closed.

Banks were not always allowed to pay interest on business checking accounts. As described in this DepositAccounts.com article, that changed in 2011.

Anonymous   |     |   Comment #1
A lot of the fraud protections that apply to a personal account do not apply to a business account.
Anonymous   |     |   Comment #2
Huge difference between personal and business accounts.  I've had A+ banking service quality from a personal account and F quality from a business account at the same bank.  Some services offered to personal accounts are not given to busienss accounts, such as remote deposit from a smart phone.  Takes longer to find a good business account than a personal account.
betacashexpress   |     |   Comment #4
Nice and knowledgeable article. As we all know that since recession banks are not giving loan to small business owners. As such they have no option other than merchant cash advance. It's terms and conditions are totally different from banks. It is easy to get with less paper work.