A business savings account offers multiple advantages such as a safety net in unexpected emergencies, interest income generation, easier tax compliance, and a better banking relationship.
A business savings account is a bank account you can use to save earnings for future business use. You can quickly and easily access money from your savings account when you need it. There are different types of savings accounts to choose from, depending on your bank.
If you’re looking for a business savings account, the best business savings account for you will be determined by the corporate structure of your organization. Some accounts, for example, are inaccessible to lone traders, while others refuse to accept public limited firms. Before you begin your search, make sure you understand your company’s structure.
Aside from the fundamental qualifying requirements, business savings accounts typically have minimum and maximum balance limits, with the minimum amount typically ranging from £500 to £10,000. Typically, the limit is set at £1 million. Anything more than this would be termed a “corporate” savings account and would require a separate application.
You’ll also want to look at business savings account rates to ensure that you’re selecting the finest account for your organization. Market-leading accounts, which may have higher minimum balance requirements, offer the best business savings rates.
Will I be able to keep my money?
If a bank fails, the Financial Services Compensation Scheme (FSCS) will reimburse individuals and small businesses up to £85,000 in deposits. A small business,’ in the view of the FSCS, must meet two of the following three criteria:
fewer than 50 workers
A yearly turnover of less than £6.5 million
On its balance sheet, it has less than £3.26 million.
It’s worth remembering that several banks have multiple brands, and the FSCS only covers the banking group as a whole. If you have more than £85,000 to invest, it’s a good idea to split your money into various accounts with different banking firms. Then, if the worst happens, your company will not lose any of its assets.
Benefits of having a business saving account
Keep your money aside for big purchases. If your organization is able to save for a large purchase, such as equipment, paying with cash is quick and uncomplicated, with no additional interest expense, and in certain situations, provides for immediate discounts or rebates. When using your funds for large expenditures, keep in mind the influence on the company’s working capital. Will you be able to meet other short-term obligations, such as salary or loan payments, if you use your cash savings? Having a well-balanced savings plan in place to replace assets is critical and can save your company money in the long run.
Provide a financial safety net. Many firms have a seasonal sales cycle, and some industries, such as agriculture and manufacturing, have significant seasonal changes. The more frequent and extensive the downtimes, the more money your company will save. Even if your company has few or no downtimes, it’s a good idea to prepare for the unexpected. Individual homes, like businesses, should have enough emergency funds to cover monthly expenses, according to financial experts.
Extend and develop. You never know when the opportunity to expand your firm will arise or when you’ll want to make a strategic expansion strategy. There are options for businesses beyond typical savings and money market accounts, depending on when you need quick access to your savings. Certificates of Deposit (CDs), for example, can allow you to earn a higher rate of interest for money that you can keep for a longer period of time. Different maturity dates make investments more liquid while also providing greater interest income when laddering CDs. Investment sweeps are another way to move money from a lower-interest account to a higher-interest account automatically. Using a variety of savings accounts might provide you with the most flexibility and earnings.
No matter what your business goals are, having a solid financial cushion in place can help increase the long-term stability of the company. How can we help your business create a savings plan? Banner Bank has a wide variety of savings, money market, CD, and sweep accounts for businesses – and we’re here to help guide business owners to the right solution.
Safety Net for Business Emergencies
Unexpected expenses may inevitably arise, no matter how carefully you plan your business. Unexpected expenses are particularly difficult to plan for in any corporate context due to the complexity of the environment. Sudden shifts in demand, as well as disruptive events such as a global epidemic, can stymie a company’s capacity to generate income and make regular commitments like rent and salaries. Business owners who put money aside in a savings account on a regular basis might utilize it as a safety net. A business savings account is a liquid asset that may be utilized to cover unforeseen needs without having to take out expensive short-term loans.
Reserve for Future Business Projects
The money accumulated in a business savings account can be deployed in future business projects. As a business grows (or for it to grow), it will inevitably need to spend money on expansion projects, marketing, etc. Owners can dip into the business savings account to finance these growth projects instead of resorting to borrowing, which could prove expensive due to the interest payable.
What are the different types of business savings accounts?
In the United Kingdom, there are various types of business savings accounts. These work in a variety of ways and give a variety of savings rates. Their suitability for your business is mostly determined by the amount of money you have to invest, the length of time you want to invest it for, and how much access you need to the money during that period. When comparing business savings accounts, it’s important to consider a variety of aspects, including the account type and eligibility, as well as the interest rates available.
Easy access accounts
Easy access accounts provide the lowest (variable) interest rates, but they give you unrestricted access to your money whenever you need it, with no restrictions or penalties. These savings accounts are great if you require access to your money at a moment’s notice.
Notice accounts
These accounts offer a somewhat higher (variable) interest rate than simple access accounts, as well as the ability to deposit funds at any time, but they do demand some advance notice before you may withdraw funds – often one to two months.
If you need the money sooner than the notice period, you’ll be penalized with a significant drop in the interest you earn. This account is appropriate if your company requires access at some point in the future, but not right away. Something with a set deadline, such as a VAT return, is a good example.
Reward/bonus accounts
These accounts provide an inflated (variable) interest rate for a set period of time – usually six months to a year – and only provided you don’t make any withdrawals during that time. If you want to invest your money for a longer period of time than the bonus period, and you don’t want to move accounts when the rate declines, you should look for an account that pays a more consistent rate. These accounts, on the other hand, can be a terrific method to enhance your company’s savings if you are willing to shop around for the best price once the bonus rate expires.
Fixed-rate bonds
Fixed-rate bonds (also known as fixed-rate savings accounts) pay a higher, fixed interest rate for a set period of time, usually between one and five years. When it comes to fixed-rate bonds, the basic rule is that the longer you invest, the higher the return.
Fixed-rate bonds provide you the security of knowing exactly how much you’ll earn and when you’ll get your money. They are, however, far more limited in terms of deposit and withdrawal requirements than other business savings accounts. Most fixed-rate bonds allow only one deposit, with no subsequent
deposits or withdrawals allowed until the bond’s maturity, which could be up to five years away. However, most business bond providers will allow businesses to open multiple accounts.
While fixed-rate bonds might offer attractive returns, keep in mind that if interest rates rise, your money will be locked up in an account with the same set rate of interest for the duration of the bond.
Bespoke savings accounts
These accounts can be customized to meet your specific company needs, both in terms of the amount of money invested and the time period over which you can invest. These customized accounts’ interest rates differ not only from lender to lender but also depending on the structure of your chosen savings plan. These savings accounts are typically only available from banks with which you already have a business relationship, and the minimum investment terms are usually fairly high.
Although you may prefer one form of business savings account over another, you may not want to limit your firm to just one product, especially if your demands are diverse and complex.
