Business Savings Accounts: What You Need to Know

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Small business owners may be tempted to use their own bank account to manage their business’ finances, but things can get complicated once the business starts earning excess capital. In this case, it’s necessary to open a business savings account. Here’s everything there is to know about them.

What is a business savings account?

A business savings account is a bank account where profits earned from business operations can be saved for future use.

What needs to be considered when deciding which bank to work with?

The number of banks to choose from can be overwhelming. These factors help narrow down the selection:

  • Introductory promotions and special offers
  • Transaction fees, minimum balance or deposit requirements, and maintenance fees
  • Special services (auto-pay bills, mobile apps, etc.)
  • Personal needs and preferences
  • Protection and insurance

Why are the benefits of opening a business savings account?

Coin being placed inside piggy bank

  • Interest earning. Business checking accounts also allow business owners to earn interest on deposits, but there are even higher interest rates to be expected with a business savings account. The best high-interest bank accounts boast rates of 1-2% annual percentage yield.
  • Overdraft prevention. Business owners can automatically transfer or withdraw cash from their business savings account to prevent overdrafts and overdraft fees on their checking account.
  • Simplified bookkeeping. Having separate bank accounts for personal and business finances makes it easier to sort through the details of certain transactions. It also allows business owners to take advantage of tax deductions without the risk of an audit.
  • Spending tracking. Business expenses can easily be monitored on a separate account. This ensures business owners that they aren’t going over their monthly budget, and keeps them accountable for their spending habits.
  • Improved credit rating. Maintaining a positive balance in a savings account is a sign of positive cash flow. This demonstrates creditworthiness and thus improves a company’s credit rating.
  • Financial protection. Business savings account are safeguarded by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. Keeping business and finances separate also protects them individually. If the business is registered as a limited liability company (LLC), then personal assets will not be affected by business debt. Likewise, the business’ funds and credit score will not be affected by personal financial issues.

What documents are needed to open a business savings account?

The process of opening a business savings account is simple. The most time-consuming part is gathering the proper documentation and information to present to the bank. These are just a few of the documents needed when opening an account:

  • Federal Employer Identification Number (FEIN) is needed to prove that the business is legitimate and to determine whether it is registered as an LLC or a corporation.
    • Depending on the type of business, the articles of organization (LLC), a partnership agreement (partnership), or the articles of incorporation (corporation) will need to be presented, as well.
  • The business official name as it is documented with the IRS and the state.
  • Contact information of the business (website, business address, phone number, email address, etc.)
  • Driver’s license ID number
  • Business license
  • Proof of identity (company-issued ID card, passport, social security card, native tribal cards, etc.)

The key to a small business’ success is smart financial management, and that starts with opening a business savings account.

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