Starting a business is an exciting journey, but managing your finances effectively is crucial to your success. One of the first and most important steps is choosing the right business bank account. With so many options available, it can be overwhelming to decide which one is best for your needs. This comprehensive guide will walk you through everything you need to know about small business bank accounts, from whether you need an account to how to choose the best one for your business.
- Do I need a business bank account for small business?
- What to look for in a small business bank account
- High street banks vs. challenger banks
- How to open a business bank account for my small business
- Pros and cons of business bank accounts
- Best business bank accounts in the UK
- Tips for small business banking
Do I need a business bank account for small business?
Sole Traders vs. Limited Companies
If you’re a sole trader, freelancer, or part of the gig economy, you might not legally need a business bank account. You can use your personal account for business transactions, but there are some important considerations:
- Professionalism: A business account gives your company a more professional image.
- Separation of Finances: Keeping personal and business finances separate simplifies accounting and tax reporting.
- Easier Access to Finance: A dedicated business account can make it easier to apply for loans or credit.
However, if you’ve set up a limited company or partnership, you are legally required to have a business bank account in order to keep your business and personal finances separate.
What to look for in a small business bank account
Choosing the right business bank account is a critical decision. Here are the key factors to consider:
1. Fees and charges
When opening a business bank account, small business owners should be aware of various costs that can impact their finances. While fees vary by bank and account type, here’s a general breakdown of common charges:
- Monthly Maintenance Fees: Typically range from £5 to £25 per month, though some banks waive these fees if you maintain a minimum balance.
- Transaction Fees: Many accounts allow a set number of free transactions per month (often 50–200), after which fees range from £0.20 to £0.50 per transaction.
- Cash Deposit Fees: Banks may charge £0.50 to £1 per £100 deposited beyond a certain limit, usually £5,000 to £10,000 per month.
- Wire Transfer (CHAPS) Fees: Domestic CHAPS transfers cost around £20 to £35, while international transfers can be higher. Some banks also charge £5 to £15 for standard international payments.
- Overdraft and Unpaid Transaction Fees: If you overdraw your account, expect to pay £15 to £30 per occurrence.
- ATM Fees: Withdrawing from an out-of-network ATM abroad can cost £2 to £5, plus additional charges from the ATM provider.
Read more: Want to keep your business banking cost down? Check out the best always free business bank accounts
2. Interest rates
- Savings Accounts: Business savings accounts typically offer better interest rates than personal accounts. Look for accounts with competitive rates and low notice periods for withdrawals.
- Deposit Accounts: These can be useful for setting aside money for tax liabilities.
3. Online and mobile banking
In today’s digital age, online banking is a must. Look for features like:
- Mobile Apps: For managing your account on the go.
- Cloud Storage: For storing important documents.
- Instant Notifications: For transactions, failed logins, and account changes.
- Accounting Software Integration: Seamless integration with tools like QuickBooks, Xero, or FreeAgent.
4. Overdraft facilities
An overdraft can be a lifeline for cash flow challenges. Ensure you understand the terms, including:
- Interest Rates: These often track the Bank of England base rate.
- Renewal Fees: Some banks charge an annual fee for overdraft facilities.
5. Customer support and additional services
- Business Advisors: Some banks offer access to business advisors or knowledge centers.
- Loan Offers: Many banks provide startup loans or credit facilities, but ensure the terms are right for your business.
High street banks vs. challenger banks
High Street Banks
Traditional banks like Barclays, HSBC, and Lloyds offer:
- Established Reputation: Long-standing expertise and global networks.
- Branch Access: In-person support and services.
- Introductory Offers: Free banking for the first year or two.
However, they can be bureaucratic and may have higher fees after the introductory period.
Challenger Banks
Digital banks like Starling, Monzo, and Tide can have offerings that are more suitable for small businesses, including:
- Lower Fees: Often more affordable than high street banks.
- Ease of Use: Quick setup and intuitive mobile apps.
- Innovative Features: Tools for invoicing, payroll, and tax management.
How to open a business bank account for my small business
What do I need to open a business bank account?
- Personal Details: Name, address, date of birth, and nationality.
- Company Details: Business name, registered address, and Companies House number (if applicable).
- Proof of Identity: Passport or driving license.
- Proof of Address: Utility bill or bank statement.
How to set up a business bank account: key steps
- Research: Use comparison sites to find the best account for your needs.
- Apply: You can usually apply online, by phone, or in-branch.
- Provide Documentation: Submit the required documents to verify your identity and business details.
- Activate: Once approved, activate your account and start using it for your business transactions.
Pros and cons of business bank accounts
Pros
- Simplified Accounting: Easier to track business expenses and income.
- Professionalism: Enhances your business’s credibility.
- Credit Building: Helps establish a credit history for your business.
Cons
- Fees: Business accounts often come with monthly fees and transaction charges.
- Admin: Managing two accounts can be more time-consuming.
Best business bank accounts in the UK
Here’s a quick comparison of some of the best business bank accounts currently available for UK small businesses:
Tide Business Current Account
- Key Features: Free account, no monthly fees, 4.07% AER savings account, accounting integrations, international payments, 24/7 in-app support.
- Best For: Small businesses, freelancers, and limited companies.
HSBC Small Business Banking Account
- Key Features: 12 months free banking, overdrafts, commercial cards, mobile cheque deposits, cashflow tools.
- Best For: Startups and businesses with turnovers under £6.5 million.
Wallester Business Account
- Key Features: Lifetime free account, unlimited users, Visa cards with spending limits, real-time analytics, mobile app.
- Best For: Businesses in the EEA, UK, UAE, Singapore, USA, and Canada.
Card One Money Business Account
- Key Features: No credit checks, same-day activation, expense cards, faster payments, Direct Debit setup.
- Best For: Small businesses with turnovers under £2 million.
Airwallex Explore Account
- Key Features: Multi-currency accounts, zero-fee international cards, global payments, integrations with Xero, Shopify, and Amazon.
- Best For: International businesses with significant cross-border operations.
Check out our full list of the best business bank accounts.
Final tips for small business banking
- Shop Around: Don’t settle for the first offer. Compare fees, features, and customer reviews.
- Plan for Growth: Choose an account that can scale with your business.
- Read the Fine Print: Understand all fees and terms before committing.
- Seek Advice: Consult with a financial advisor or accountant if you’re unsure.
By taking the time to choose the right business bank account, you’ll set your business up for financial success. Whether you opt for a traditional high street bank or a modern challenger bank, the key is to find an account that meets your unique needs and helps your business thrive.
Ready to take the next step? Start comparing business bank accounts today.
