Having a business bank account is essential in managing cash flow. The types of accounts necessary will vary by company. This article will check out five major types of business banking accounts. Check them thoroughly, comparing their pros and cons to understand which ones make the most sense for your company.
Business checking account
A business checking account is regarded as one of the most versatile types since it has the least restrictions on what you plan to do with your money. It offers multiple ways to withdraw your funds, including checks, electronic transfers, wire transfers, ATM, and debit cards.
There are also different options for putting in money, including wire transfers, electronic transfers, mobile check deposits, and sometimes even branch or ATM deposits. Some business checking accounts also connect with popular business tools like accounting software. This can save you from manual transactions and break them into business accounting categories.
Unlike personal checking accounts, which offer unlimited transactions, most business checking accounts have limits for monthly transactions, including transfers, deposits, and withdrawals. Exceeding the limit may result in extra per-transaction fees, so choose one with enough complementary transactions.
Business savings account
Business savings accounts offer a better fit if you have operating profits that you don't plan to use soon. It enables earning a competitive interest rate for your savings, but the tradeoff has limited access. Some banks limit monthly deposits to a business savings account and even the number of cash deposits per month. While it's less restrictive than other businesses checking transaction limits, keep this in mind when deciding on your company's right business savings account.
Business certificate of deposit (CD) account
Business certificate of deposit (CD) accounts offers an alternative solution to business savings accounts as it lets you earn more interest. However, they're not a good place to keep the money you need for operating expenses.
Opening a CD means agreeing not to touch the funds you deposit for a certain amount of time, known as the CD term. This could be from just a few months to a couple of years. The interest rate will depend on the CD term plus the term length.
While you can take money out of your CD at any time, you'll incur a penalty before the term is up. Every CD has its formula to determine the penalty. A business CD isn't typically a good idea unless you're confident that you won't require money before maturity.
Business money market account
Business money market accounts (MMAs) may appeal to businesses that are interested in an account that combines the features of business checking and savings accounts.
Business MMAs are comparable to savings accounts and limit you to six monthly penalty-free withdrawals. MMAs are also interest-bearing and can offer better APYs than business savings accounts, while rates vary significantly based on which bank you choose.
Brick-and-mortar banks typically can't match the higher rates of online banks since they offer much higher overhead costs. MMAs sometimes have better minimum deposit requirements than business savings accounts, prohibiting business owners from opening one of these.
MMAs usually offer varied ways to access your money. Options may include bank to bank, check-writing capabilities, and ATM cards for withdrawing cash directly, similar to checking accounts.
A merchant account is usually necessary for small businesses to accept debit and credit card transactions. When a customer pays a company with a card, the money goes into this account then gets wired automatically to other business bank accounts
These accounts come with their fees, including application and setup fees and monthly and per-transaction fees, so it's vital to familiarize yourself with associated costs before signing up.
Check your goals before committing to a business bank account. Most businesses will require at least one business banking account while others may need one. After knowing which accounts you need, you can start the right one. You don't need to do all your business banking. Whatever you decide, ensure that you compare a few options to ensure you're getting the best deal.