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Whether you’re running a large or small enterprise, you probably need a business bank account. However, all business accounts are different, and getting the right one can be the difference between improving the efficiency of your business and incurring costly overheads. So how can you ensure you get the best account for your business needs?

What are business bank accounts?

Business bank accounts are bank accounts designed for use by businesses. There are numerous types of bank account available to businesses, including merchant, savings, and foreign currency, but usually when people talk about business bank accounts they are referring to business current accounts.

Business current accounts are much like personal current accounts and offer broadly similar functionality. They can be used to make and receive payments on behalf of your business, and you can manage your account online. Where they differ most noticeably is in availability and cost.

Most personal current accounts in the UK are free to use, but business accounts universally levy some significant charges and fees. Some offer “free banking” to startups or switchers for a limited period of time, but afterwards most accounts will charge you a monthly fee and individual fees for most functions you’re likely to use.

Account costs

The fact that business bank accounts charge for banking functions is not surprising, since banks incur costs themselves to complete these tasks. The charges can vary dramatically from bank to bank, however – so getting the best business banking deal means minimising the charges incurred for the functions your business uses most frequently.

Here are some common business banking features that are likely to incur a fee:

  • Making electronic payments, including direct debits, standing orders, CHAPS and BACS
  • Withdrawing cash, including in-branch and via any ATM
  • Receiving card payments
  • Paying cash into your account, both at your own branch or another bank
  • Paying cheques into your account, both at your own branch or another bank
  • Business credit card transactions
  • Cash exchange for checkout floats
  • Using any of the above banking functions abroad

Aside from costs directly as a result of use, many banks also charge an ongoing monthly fee for maintaining your business account with them.

How to get the best bank account for your business

There are a number of considerations you will need to balance in order to get the best account for your business. As we have seen, business bank accounts incur a charge for almost every banking transaction, therefore it makes sense to consider how your business will use the account on a day-to-day basis – whether you mostly make and receive payments electronically, or whether physical cash is your main method of making and receiving payments. The associated costs for your most-used functions should be a major factor in choosing a business bank account. The other things to consider are the ongoing (often monthly) costs of maintaining the account, and any other benefits the account offers.

The exact functionality available from business accounts varies depending on provider and account type, but most accounts will offer some combination of the following elements:

Online banking

Online banking is good for checking your account balance, downloading statements, setting up and authorising payments (including scheduling, debit debits and standing orders, and one-off electronic payments).

Mobile banking

Most traditional business bank accounts offer a mobile app, which carries mostly the same functionality as online banking.

Branch-based banking

You can visit a bank branch to pay in cheques received by your business, deposit cash received by your business, and get change for your checkouts’ floats.

Debit cards, credit cards, and cheques

These enable you to pay for goods and services on behalf of your business when instant payment is required.

Overdraft

Having an overdraft facility with your bank account can be a useful tool for managing short-term business cash flow, but you should look out for the fees and charges associated with them, as they vary greatly from account to account. In order to be successful in any overdraft application, you will need to provide evidence of a good, financially sound trading history.

Additional business account benefits

Alongside the standard features you might expect from a business bank account, many also offer additional benefits which can be very useful. These benefits vary from account to account, but can include:

Free banking

Some banks offer free business banking to startups or switchers for a fixed introductory period. This is obviously a great way to minimise costs when you are bootstrapping your startup, but you should be careful to check that you reassess your banking needs before this promotion expires, as your banking costs could skyrocket quickly.

In-credit interest

Some business bank accounts offer in-credit interest, though these interest rates vary from account to account and are often tiered, depending on the amount of money you keep in your account. The rates are not game-changing, but if your business is likely to hold an in-credit balance, it would be worth seeking out a business account that offers some sort of return on your hard-earned cash.

Mentoring

Banks can make a lot of money from well-run businesses and lose money on failing ventures. It is in their interests to help their business customers succeed – which is why many banks offer startup mentoring to new businesses. This can be invaluable, given their experience helping other local businesses succeed.

Skills workshops

There is already a great deal of untapped support available to businesses from government agencies and business support networks. However, even veterans can learn new tricks, especially in the fast-paced world of modern business, so some banks also offer skills workshops – for example, digital skills – to help support their customers.

Are there alternatives to a traditional business bank account?

If you have been turned down for a high street business bank account due to a less than perfect credit rating, or you are simply looking for something different, a business prepaid bank account may be a viable alternative. Business prepaid accounts do carry a monthly fee like traditional business accounts, and do not offer any form of overdraft or in-credit interest. However, with no credit checks, easy online application, some free functionality (though this does vary from account to account), and often sleeker, more business-focused mobile apps, the prepaid business account market is certainly worth considering.

Business bank accounts FAQ

What types of business can apply for a business bank account?

All banks differ in their eligibility criteria, so it’s best to check before you apply. In general, business accounts can be opened by any type of business, including sole traders, partnerships, limited liability partnerships, limited companies, public limited companies, trusts or charities. While any business can apply for a bank account, most banks have further eligibility criteria, including a minimum and maximum annual turnover, and a minimum amount of directors, owners or partners, etc.

Is it easy to switch business accounts?

Business accounts operate in the same way as personal current accounts in regard to switching, in that if the bank offers a switching guarantee, then an account can be switched within seven days.

What fees are payable with business accounts?

Some banks offer free banking to start-up companies or those that switch to them – but only for a limited period of time (usually one year). Furthermore, ‘free’ banking doesn’t tend to include everything, and often things like CHAPS payments, foreign currency transactions, or change-giving incur a charge. After the introductory period, almost every feature with a business bank account will incur a (small) fee.

Is interest paid on in-credit balances?

Some business bank accounts do offer in-credit interest, though it is unlikely to be at a game-changing rate. If you are likely to have an in-credit balance which you will not need immediate access to, it may be financially prudent to investigate a proper business savings account.

Can I get a business overdraft?

You can certainly apply for a business overdraft. In order to be successful in your application, your business will need to undergo (and pass) a credit check. Many business accounts clearly advertise their overdraft fees (which are often tiered, depending on the amount you are overdrawn), while others state that the fees are ‘negotiable’ or ‘upon request’.

Is my money safe in a business bank account?

Small-and-medium business balances up to £85,000 are covered under the FSCS (Financial Services Compensation Scheme), which means if your bank goes into liquidation, you will be reimbursed up to this amount. Larger businesses are not protected by the FSCS or any other such scheme.

Are there alternatives to a business bank account?

If you have been turned down for a business bank account because you did not pass the credit check, or for any other reason, there are alternatives available in the form of prepaid business accounts.  These accounts charge a monthly fee, and you do not have to undergo a credit check to get one. The big difference with a prepaid account is that there is no overdraft facility, so you can only spend what you have in the account.

Now read: How to find the best current account