Business savings accounts let you earn interest on your capital reserves, and can provide flexible access or longer-term investments with more impressive savings rates. Business savings accounts have much in common with personal savings accounts, and work in roughly the same way, with one of the main differences being the eligibility criteria: to open a business savings account, as the name suggests, you need to run a business.
Your business’s corporate structure will determine which savings accounts are available. For instance, some accounts are not available to sole traders, while others do not accept public limited companies. Be sure you understand your corporate structure before diving into your search.
Beyond the basic eligibility criteria, business savings accounts generally have both minimum and maximum balance limitations, with the minimum tending to range from around £500 to £10,000. The maximum is usually capped at £1 million. Anything larger than this would be considered a ‘corporate’ savings account, which would need to be applied for separately.
The Financial Services Compensation Scheme (FSCS) will reimburse individuals and small businesses on deposits of up to £85,000 if their banking institution fails. In the eyes of the FSCS, a ‘small business’ must meet two of the following three criteria:
It’s worth noting that some banking institutions operate multiple brands, and the FSCS only applies at the banking group level. If you have an amount larger than £85,000 to invest, it would be more secure if funds are split across multiple accounts with different banking groups. Then, if the worst should happen, your business won’t lose any of its savings.
Larger businesses aren’t eligible for FSCS protection, but they are still advised to split their deposits across multiple banking groups, to avoid having all their eggs in one basket.
In short, yes. All savings interest is paid gross, which means you’re liable for reporting any tax payable. If you own a business that’s separate from your personal income, you will need to declare any income from savings to HMRC and pay any corporation tax due. If you are a sole trader, however, the position is a little different, because for tax purposes there is no distinction between ‘business’ and ‘personal’ income. This means that if you’re a basic rate (20%) taxpaying sole trader you’ll be able to draw on your personal savings allowance (PSA), which saves you from paying tax on savings interest up to £1,000. A higher rate (40% or 41% in Scotland) sole trader only gets a PSA of £500.
There are several types of business savings accounts available in the UK. Their suitability for your business largely depends on how much you have to invest, how long you wish to invest your capital for, and how much access you need to the capital during that time.
Easy access accounts tend to offer the lowest (variable) interest rates, but they do enable unfettered access to your funds when you need them, without limitations or penalties. If you need access to your capital at a moment’s notice, then these savings accounts are ideal.
These accounts offer a slightly better (variable) interest rate than easy access accounts, and the freedom to deposit money at any time, but they do require some notice before you can draw on your funds – typically around one to two months. If you require your funds quicker than the notice period, you will be penalised with a hefty reduction in the interest earned. This type of account is ideal if your business needs to access at some point down the line, but not immediately. A good example is something with a definitive due date, such as a VAT return.
These accounts offer an inflated (variable) interest rate, which is offered over a specific period – typically six months to a year – and usually only if you don’t make any withdrawals during that time. If you are looking to invest your savings for a longer term than the bonus duration, and you’re not keen to switch accounts once the rate drops, it may be worth looking for an account that offers a more regular rate. If, however, you are willing to shop around for the best deal once the bonus rate expires, then these accounts can be a great way to boost your business savings.
Fixed rate bonds (aka fixed rate savings accounts) offer a comparatively generous and fixed interest rate for a fixed period – typically between one and five years. The general rule with fixed rate bonds is, the longer you invest the more substantial the return.
Fixed rate bonds offer the stability and assurance of how much you will earn and exactly when you will receive your money. However, they are much more restrictive in both their rules for depositing and withdrawing funds than other business savings accounts. With most fixed rate bonds, only a single deposit is allowed, with no further deposits or withdrawals permitted until the maturity of the bond – which could be up to five years away. Most business bond providers will permit businesses to open more than one account, though.
While fixed rate bonds can earn attractive returns, you should remember that if interest rates were to rise, your money would be tied up in the account for the duration of the bond with the same fixed rate of interest.
These accounts can be tailored to your specific business requirements, both in terms of the amount of capital invested, and the period you can invest for. Interest rates offered with these bespoke accounts vary, not only from lender to lender, but also depending on the structure of your chosen savings plan. Such savings accounts are usually only offered by banks with whom you have an existing business account, and the minimum investment terms are generally quite high.
Although you may prefer one type of business savings account, you might not want to restrict your business to a single product, especially if your company’s needs are multifaceted and complicated. For example, if you have a lump sum that can be stowed for a long period, as well as money needed immediately on an ad hoc basis, you would probably be better served by two separate accounts, rather than one all-encompassing account.
Usually, yes. However, if you’re a sole trader, you may not have to pay tax, if the interest you receive, combined with interest earned from other savings, does not exceed your personal savings allowance.
Small and medium-size businesses will gain protection for their savings from the Financial Services Compensation Scheme (FSCS), assuming your business savings account is with an institution that is covered. Check for the FSCS logo before applying for any account.
All banks have a duty to prevent money laundering, so whenever you open an account, they will run a number of checks to validate the business and personal details you supply. Some will also require additional documentary proof, like a passport, before they can set up your account.
Perhaps surprisingly, the answer is not always. Most banks do offer online banking facilities, but not all of them. If this is important to you, check that your desired account provider offers online banking before you apply.
Every account supplier has different account limits, so you’ll need to check this if you’re investing a sizeable sum. Equally, it’s worth noting that FSCS protection only covers the first £85,000 invested with any particular banking group. So, if you are depositing more than £85,000, you may want to split your investment across a number of different institutions to obtain the maximum cover possible.
Only a person authorised to make financial decisions for a business can apply for a business savings account – the finance director, for example. However, once the account has been established, it is usually relatively easy to add additional users to an account.
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Last updated: 31 May, 2019
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