Glossary

Business Savings Account

Business savings accounts

If your business is in a position where you can afford to put away extra capital, opening a business savings account is a logical move. This way you’ll earn as much interest as possible on your spare funds and build a healthy cash reserve for future business needs.

There are various types of business savings accounts available in the UK, each with different benefits and drawbacks to weigh up. Below we explain how they work and what to consider when deciding where to deposit your savings.

What is a business savings account?

Like a personal savings account, a business savings account allows you to earn higher interest on the money you deposit than you would in a business current account. They make financial sense for any business that has spare money to save and wants to earn a competitive interest rate on top.

Whereas business current accounts are intended for everyday spending and earning, savings accounts are designed for future use – be it a couple of weeks or several years away. The more money you save and leave untouched over a longer period, the more interest you’ll earn.

Why use a business savings account over a personal savings account?

Money in business savings accounts is only used for business purposes. Maintaining this distinction between your personal and business savings can make money management easier in general, but it also has legal implications.

Putting business savings into your personal account effectively puts them under your name. But if your business is a limited company, it’s officially a separate entity and therefore must be kept separate from your personal savings for tax reasons.

There are exceptions to this rule. If you’re a sole trader, you can save business earnings in a personal account as you and your business are viewed as one. Still, opening a separate business savings account might make it easier to track and allocate business finances.

Business savings account benefits

The obvious perk is that business savings account rates are higher than those on business current accounts, which are usually zero or next to nothing. Building up your savings is a great way to make your long-term objectives feasible, such as:

  • Hiring game-changing talent
  • Improving your facilities or moving to a new premises
  • Investing in better equipment and technology
  • Developing and launching new product lines 

Having savings in the bank can also be reassuring if you experience major challenges that would otherwise hit your cash flow, like:

  • Late customer payments
  • Equipment breakdowns
  • Unexpected revenue dips due to a quiet trading period or increased competitor activity

Other business savings account benefits can be specific to the provider, like exceptionally high interest rates in your first year of having the account.

Types of business savings accounts in the UK

Business savings accounts can be broken down into three key categories, each with their own features, benefits and drawbacks to compare.

Fixed-term business savings accounts

Fixed-term business savings accounts pay one set interest rate for the duration of your agreed term. If you can lock in a good rate, which is usually doable with this type of account, you’re guaranteed to keep it until your term ends.

It’s worth checking the small print, however, as you may have to pay a withdrawal fee to take money out. You might need to give the provider notice before doing so too, so these accounts can be less suitable for emergency use. 

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Instant access business savings accounts

As the name suggests, instant access business savings accounts typically offer restriction-free deposits and withdrawals.

These accounts are ideal if you need more flexibility in the way you save. You’ll usually pay a price for that freedom, however, as interest rates tend to be lower than with fixed-term savings accounts.

You’ll also still need to maintain a minimum balance rather than withdrawing your savings entirely.

Fixed-term bonds

Fixed-term bonds are similar to fixed business savings accounts in that the interest you accrue is guaranteed to stay the same for the duration of your term. The difference is that your money is locked away with no access whatsoever, so you should only deposit money that you won’t need in the near future.

While interest rates on fixed-term bonds tend to be the highest of the three options described here, they usually drop significantly when the term ends.

What to compare when researching business savings accounts

There are lots of different business savings account providers out there offering different rates, perks and features. You’ll want to choose the one that suits your business best, so as well as comparing the account types above, here are some key factors to assess:

  • Interest vs access: The right account for you will depend on how much flexibility you want around withdrawals. More restrictive savings accounts usually come with higher interest, so consider your priorities before opening one.  
  • Bonuses: Some business savings accounts include a bonus rate on top of the main interest rate which lasts for a set period. Short-term bonuses tend to be higher, but you might want to change your account sooner once they expire.
  • Opening restrictions: Some accounts are only available to certain types of businesses, so you’ll need to check your eligibility. Providers also have different rules on opening and managing them, be it through internet banking, by post or over the phone.
  • Minimum balance: You’ll usually need to make a minimum deposit to open a savings account, then maintain a minimum balance to avoid paying extra fees. Figures tend to vary by account type, with easy access accounts usually having lower minimums.

Is your money protected in a business savings account?

Business savings accounts in the UK, particularly for small to medium businesses, are usually covered by the Financial Services Compensation Scheme. If not, you’ll still be protected by the Financial Conduct Authority, but it’s worth checking the finer details as not all financial protection is equal.

Do I need a business savings account?

When used alongside a business current account, a savings account can be an extremely useful tool for maintaining and growing your company.

If your cash flow is healthy and you’ve built up spare funds, it makes sense to open a business savings account and make your money go further. It’s worth carefully researching the different types, rates and features available to settle on the right account for your needs.

Business savings accounts are just one method of managing and raising business finances. If you’d like more information about alternatives such as short and long-term loans and cash advances, get in touch with one of our specialist advisors. We offer a broad range of finance with features that can be tailored to your business. 

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