Choosing a business bank account: what to consider
Make sure you shop around before deciding on your small business banking so you choose the best business bank account (and business account manager) to suit your needs. And remember, the bank you choose for your small business banking does not necessarily need to be the same as the one you choose for your private banking.
It's important to remember that banks are not a charity they are a business, and like all businesses they will choose how to balance their risk so they make the highest profit or least loss.
What a business bank account should offer
The Competition Commission, concerned with the excessive profits made by the main four main high street banks, have stipulated in the recent past that banks must offer either free business banking OR pay interest on a business bank account. However, not all banks have implemented this so the first thing to ask is ‘How long is my free business banking period’. Look for an answer of at least 12 months, preferably longer. However, if yours is a high turnover business it may benefit you more to have interest paid on the balance in your business bank account rather than open a business bank account that offers free business banking. Alliance & Leicester is currently offering both free business banking and interest on your balance. Find out more about this business current account offer.
Your free business banking period starts from when you open the business bank account so if you’re just starting out and not in a position to trade for a while, wait until you’re expecting your first earnings or are about to raise your first invoice before opening a business bank account.
Choosing who to bank with
So, free business banking or interest on the balance in your business bank account aside, here are some of the factors you may use as a basis for your choice of small business banking provider:
- the charges you will incur and under what circumstances
- recommendations or warnings(!) from friends or small business acquaintances
- the business banking services on offer
- the additional services support or information the bank provides to small businesses
- whether you will have a dedicated small business banking manager
- if it’s important to you, you should also consider the bank’s ethical standing and investment policies
What banking services you might need
Some banks will have different small business tariffs according to which services you’re going to be using so have a good long think about exactly what you need the business bank account for:
- are you going to make use of the bank's counter services or will you rarely visit a branch because most of your payments (in and out) will be done electronically?
- will you be depositing large sums of cash or will most of the payments into your small business bank account be by cheque?
- will you be making or receiving payments in a currency other than sterling?
- will you be making lots of transactions on a daily basis or just a few high value ones once or twice per month?
- will you be setting up direct debits or standing orders, into or out of your small business account?
If the bank you prefer does not provide all the services you need, or if you can get better deals for specific products, such as a loan, from another bank, it is perfectly possible to use different banks for different services. However, remember to do your sums properly as a bank will often offer better terms if you commit all your small business banking requirements to it. If you’re spreading your business banking between two or more banks you will be less valuable to each one as a customer and so you may well find you’re put into a higher charge band.
What type of business bank accounts you might need
- a business current account for day-to-day transactions, payments and receipts
- an instant access business deposit account for any surplus you don’t need day-to-day
- a longer-term business deposit account, that pays a higher rate of interest, for funds you don’t need immediately, or at least you won’t need at short notice
You may also need:
- A foreign currency business bank account if you're going to be trading overseas or in foreign currency
- A business loan account for any business loans you may take out.
Remember that as your business develops and grows your business banking requirements will change so be sure to regularly review your business turnover, how you’re using your business bank account and what bank charges your business is incurring.
Accepting credit card payments
If you want to accept payment by credit or debit card, you’ll need to set up a merchant payment account. Most of these accounts accept Visa, Mastercard, Diners Club and Maestro cards, most do not necessarily accept AmercianExpress cards so do check and compare several different offers.
You will probably be charged a set-up fee, and then a fixed monthly fee plus a per transaction fee. The transaction fee will usually be set according to the number of transactions and the average value of each transaction.
If you’re taking payments from customers face to face you’ll need to rent or buy a terminal from your service provider.
If you’re taking payments over the phone or via your website go for a provider who offers web or PC based software for you to validate your sales (this option is likely to be cheaper than renting a terminal).
You do not usually need to have your merchant services provided by the same bank that provides your business current account so do shop around for the best quote.
Choosing a business bank account: what to consider
Make sure you shop around before deciding on your small business banking so you choose the best business bank account (and business account manager) to suit your needs. And remember, the bank you choose for your small business banking does not necessarily need to be the same as the one you choose for your private banking.
It's important to remember that banks are not a charity they are a business, and like all businesses they will choose how to balance their risk so they make the highest profit or least loss.
What a business bank account should offer
The Competition Commission, concerned with the excessive profits made by the main four main high street banks, have stipulated in the recent past that banks must offer either free business banking OR pay interest on a business bank account. However, not all banks have implemented this so the first thing to ask is ‘How long is my free business banking period’. Look for an answer of at least 12 months, preferably longer. However, if yours is a high turnover business it may benefit you more to have interest paid on the balance in your business bank account rather than open a business bank account that offers free business banking. Alliance & Leicester is currently offering both free business banking and interest on your balance. Find out more about this business current account offer.
Your free business banking period starts from when you open the business bank account so if you’re just starting out and not in a position to trade for a while, wait until you’re expecting your first earnings or are about to raise your first invoice before opening a business bank account.
Choosing who to bank with
So, free business banking or interest on the balance in your business bank account aside, here are some of the factors you may use as a basis for your choice of small business banking provider:
- the charges you will incur and under what circumstances
- recommendations or warnings(!) from friends or small business acquaintances
- the business banking services on offer
- the additional services support or information the bank provides to small businesses
- whether you will have a dedicated small business banking manager
- if it’s important to you, you should also consider the bank’s ethical standing and investment policies
What banking services you might need
Some banks will have different small business tariffs according to which services you’re going to be using so have a good long think about exactly what you need the business bank account for:
- are you going to make use of the bank's counter services or will you rarely visit a branch because most of your payments (in and out) will be done electronically?
- will you be depositing large sums of cash or will most of the payments into your small business bank account be by cheque?
- will you be making or receiving payments in a currency other than sterling?
- will you be making lots of transactions on a daily basis or just a few high value ones once or twice per month?
- will you be setting up direct debits or standing orders, into or out of your small business account?
If the bank you prefer does not provide all the services you need, or if you can get better deals for specific products, such as a loan, from another bank, it is perfectly possible to use different banks for different services. However, remember to do your sums properly as a bank will often offer better terms if you commit all your small business banking requirements to it. If you’re spreading your business banking between two or more banks you will be less valuable to each one as a customer and so you may well find you’re put into a higher charge band.
What type of business bank accounts you might need
- a business current account for day-to-day transactions, payments and receipts
- an instant access business deposit account for any surplus you don’t need day-to-day
- a longer-term business deposit account, that pays a higher rate of interest, for funds you don’t need immediately, or at least you won’t need at short notice
You may also need:
- A foreign currency business bank account if you're going to be trading overseas or in foreign currency
- A business loan account for any business loans you may take out.
Remember that as your business develops and grows your business banking requirements will change so be sure to regularly review your business turnover, how you’re using your business bank account and what bank charges your business is incurring.
Accepting credit card payments
If you want to accept payment by credit or debit card, you’ll need to set up a merchant payment account. Most of these accounts accept Visa, Mastercard, Diners Club and Maestro cards, most do not necessarily accept AmercianExpress cards so do check and compare several different offers.
You will probably be charged a set-up fee, and then a fixed monthly fee plus a per transaction fee. The transaction fee will usually be set according to the number of transactions and the average value of each transaction.
If you’re taking payments from customers face to face you’ll need to rent or buy a terminal from your service provider.
If you’re taking payments over the phone or via your website go for a provider who offers web or PC based software for you to validate your sales (this option is likely to be cheaper than renting a terminal).
You do not usually need to have your merchant services provided by the same bank that provides your business current account so do shop around for the best quote.