Deciding which current bank account to go with might seem relatively unimportant when you're starting a new business or when you’re busy running a more-established enterprise, but it’s a key business decision – one that could ultimately save or cost your small business big money. Taking enough time to find out some basic facts is essential if you’re to find the best bank account for your small business.

Do I need a business bank account?

Sole traders are not required by law to have a separate business bank account – but it’s strongly advised. Even though there may be fees and charges in the future, keeping your personal and business income and costs separate can make life much easier when doing your accounts, claiming expenses and completing your tax returns, while making mistakes less likely. In any case, many banks will not allow you to use your personal bank account for business, while limited companies must have their own bank accounts.

Whether you’re starting a new business or you’re more established and thinking about switching banks, here are five key things to consider when shopping around for the best business bank account.

Business bank account introductory offers

Many startup owners open a business current account at the bank where they have their personal current account. This can be the quickest and easiest option, but it may not be the best choice when opening a business bank account. 

From high street to online-only banking, research the full range of business bank account options available and compare introductory offers. Normally, new businesses get charge-free periods (eg first 12 or 18 months), possibly followed by discounted standard charges or fees for a fixed period. Less generous introductory deals are also available to businesses that want to switch banks.

Monthly business bank account fees and standard charges

Once introductory periods are over, businesses normally pay monthly bank account fees (usually averaging £5-£7 for high-street banks; more for different features/terms from these and other providers). Some accounts are not available to startups; banks normally offer accounts better tailored to new businesses. 

Banks can also make a small charge every time your business:

  • withdraws cash 
  • pays by a cheque
  • pays in a cheque
  • pays cash in
  • pays by bank transfer
  • uses or goes over its overdraft
  • receives a card payment
  • receives payments from overseas.

When comparing business bank accounts, find out exactly what fees and charges you will pay and when. Some banks offer a cheaper tariff of charges for transactions made electronically (online) to reflect the lower cost of servicing these transactions compared to traditional branches.

Business bank account interest rates

Many current business bank accounts offer a 0% AER (Annual Equivalent Rate – the interest money in your business current account will earn), although there are some (usually subject to different terms and conditions) that offer current accounts with 0.1%-0.25% AER. 

In reality, interest rates are much less of an issue for many small businesses when comparing current business bank accounts, because other options (including savings accounts) provide greater interest/returns. Business savings accounts can offer 0.65%-1.75% AER, although there are minimum deposits (eg £5,000) required and they must be left for an agreed time (eg one year). 
 

Main business bank account key features/benefits

Business current accounts normally include similar service features as personal current accounts and some will be more relevant/attractive to your small business than others. For example, your business might want an overdraft or you may want a cheque book or need to bank cash regularly. 

If your business needs access to finance, such as bank loans or a business credit card, you may be able to find slightly better rates/deals from someone other than your bank, so it pays to shop around. Most providers offer online banking facilities, of course, which can save you time and help you to better manage your cash flow. You might need to make frequent online payments to recipients in the UK or overseas or receive payments in overseas currencies. 

Your chosen current business bank account should provide the most cost-effective solution. You may be able to negotiate a reduce tariff if you think a bank’s standard charge is too expensive. No harm in asking. A bank may be able to suggest ways to minimise your banking costs, for example, by paying online rather than by cheque. 

Customer service and support

Also think carefully about the level of service and support your business will need from your bank. You may be perfectly happy to go with an online banking-only solution, which can be cheaper, with customer service and support less of an issue for you. 

Alternatively, in-branch banking might be essential. Your business may need its bank to be on a nearby high street, where you can deposit cash, get change, pay in cheques or arrange face-to-face meetings with a relationship manager. Find out exactly what services, support and tools a bank will provide.

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Lloyds Bank

Working in partnership with Informi, Lloyds Bank can provide a unique perspective for small businesses seeking support and guidance on their banking and finance needs to help them achieve their ambitions. 

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