Business savings accounts, like personal savings, offer interest on the funds you deposit, making the most your of your company's surplus cash.
By Laura Rettie, Personal Finance Journalist.
Business savings accounts can help your company get the best returns on surplus cash. Find out all you need to know about business savings accounts with our handy guide.
Business savings accounts are a place for businesses to store surplus cash and earn interest. Unlike most business current accounts, company savings accounts don’t typically charge a monthly fee and offer competitive interest rates.
Business savings accounts are available for sole traders, partnerships and limited companies, but different providers have different eligibility requirements, so it’s important to check the criteria before applying.
Like with personal savings accounts, there are various types of business savings accounts available. Each account type will offer different access levels and balance criteria, so the best account for your business will depend on your company’s circumstances.
Instant-access accounts, also called easy-access accounts, allows you to deposit and withdraw business funds anytime, however, some easy-access business accounts may require you to have a minimum balance left in the account at all times.
These accounts are highly flexible but don’t offer the best business savings rates. It’s also common for instant-access accounts to have variable interest rates, meaning the amount of interest you earn can go up or down, depending on the Bank of England base rate.
Notice accounts typically offer a higher variable interest rate than instant-access accounts, but don’t provide the same flexibility. These accounts require you to give the bank notice in advance before you make a withdrawal.
The amount of notice you need to give is predetermined and can vary from seven days to a few months.
In most cases the longer your notice period is on a business savings account, the better the interest rates will be. Before opening a business notice account, consider if your business is likely to need quick access to the money you deposit.
Fixed-term savings accounts typically have the best interest rates but the least flexibility. With a fixed-term account, you’ll essentially be locking your business’s spare cash away for a predetermined period.
With fixed-term accounts you’ll receive a fixed interest rate which means you’re guaranteed to get the rate for the entire fixed term. Because of this, you’re protected from any interest rate falls; however, you also won’t benefit if interest rates rise.
When contemplating opening a fixed-term account, it’s essential to think about whether you’ll be able to afford to lock away the funds for the entirety of the term. Withdrawing funds before the fixed period is over can carry penalties, such as a withdrawal fee or losing some or all of the interest accumulated.
Business savings accounts generally offer higher interest rates than a business current account. So if your business has surplus cash sitting in your business account, it would be worth looking into a company savings account to get the best returns.
It’s also a good idea for businesses to put money into a savings account for emergencies or to cover unexpected expenses, such as having to make repairs on business premises or replacing broken equipment or machinery.
Additionally, should your business’s circumstances change and affect the amount of money coming in, it’s a good idea to ensure you have funds available to cover the business's day-to-day running.
It’s always good to have some savings stashed away for rainy days and emergencies incase your business loses a client or the price of energy suddenly shoots up. Savings can prevent redundancies in slower months or can be helpful in unexpected or unprecedented circumstances like a pandemic.
When looking for the best business savings account, it’s a good idea to compare your options; using a comparison site is a helpful way to get a clear picture of what’s on offer.
Before you decide which savings account is right for your business, you need to know what you need from the account. Can your business afford to lock away a sum of money for a fixed period to get the most returns? Or is your business likely to need flexible access to the money you deposit?
It’s also important to check the eligibility criteria of the business savings account you wish to open. Each provider will have different requirements for opening a business savings account; for example, some banks will require you to have a business current account open with them. Some providers will specify a minimum or maximum annual turnover or only be available for limited companies.
For the most part, businesses are required to use separate accounts for business and personal finances, so you will have to have a specific business savings account and not a personal savings account.
There is, however, an exception for sole traders and freelancers, where you and your business are viewed as the same entity. As a sole trader or freelancer, you can open both business current accounts and savings accounts, but you’re also able to use your personal accounts.
The interest earned on a business savings account will be taxable, but the amount of tax your business will need to pay will depend on several factors.
Firstly, how much your business has in savings will determine how much interest you earn, and only the interest earned is taxable. But more importantly, the tax you’ll pay will depend on what type of business you are.
If you’re a sole trader or partnership, the interest you earn on your savings will count towards your income and must be declared on your self-assessment tax return.
Limited companies, however, pay corporation tax on any profits made throughout the year. Therefore for limited companies, any interest earned on savings will need to be included in your profit calculations.
The Financial Services Compensation Scheme (FSCS) will cover accounts held by sole traders, partnerships, small businesses and limited companies. However, there are certain limitations to this cover.
Firstly, the FSCS will cover up to £85,000 per person (or business) per registered bank or building society. So if your company has a current and savings account with the same bank or two different banks that share a banking licence, you will be covered up to £85,000 across the two accounts.
Additionally, sole traders are viewed as the same entity. You will only be covered up to £85,000 across any personal and business accounts held with the same financial institution.
In contrast, if you own a limited company, you and your business are viewed as separate entities so your business and personal accounts would be covered separately.
The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.
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For the most part, you can withdraw funds from your business savings account, but there are limitations depending on your account type.
An easy-access business savings account will allow you to withdraw funds on behalf of your business at any time, although the account may have a minimum balance requirement.
Notice savings accounts will require you to give notice before you withdraw funds. This period can range from a few days to a few months.
Withdrawing cash from a fixed-term savings account before your term ends may mean being charged a fee and you may also lose some or all of the interest you’ve earned up to that point.
There is no limit to the amount of savings accounts a business can have, as long as your business meets the eligibility criteria of the individual bank or building society.
Each provider will have its own minimum and maximum balances, so it’s a good idea to check the terms and conditions before opening a business savings account.
The majority of providers will allow you to open and manage your business savings account online; however, a few may still only be available in branch or over the phone.
