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Free business bank account FAQ

When it comes to business banking, there’s a lot of choice. Some accounts will cost you and some won’t. So, what exactly is the difference between a free business account and paid account – and should you switch? Let’s look at some of the main FAQs. 

Why are some business bank accounts free and others not?

Banks make their money through fees and charges amongst other things. Some banks and account providers are able to offer free options (i.e. no monthly charge) either as part of an introductory offer or as part of a basic account offering. For the latter, this may mean certain limitations:

  • Minimum or maximum balance thresholds
  • Limits on number of transactions
  • Overseas payment restrictions
  • No access to credit
  • No account management or limited customer service

For some of the free digital account providers there may be other charges such as e-payment and transaction fees (once you’ve exceeded your allowance).

Most of the high street banks offer free day-to-day business banking as part of their introductory offer for new customers. Once this over (for example, after 12 months), you’ll be placed on their standard account tariff (usually ranging from £5 per month to £10). They will make their money back as it’s likely you’ll stay on as a customer beyond this. 

How do I choose between the accounts on offer?

Whilst an account may be nominally free to begin with, the banks and account providers will be looking to make money ultimately. This is not necessarily a bad thing. If, for example, you only make a limited number of transactions to begin with, you might be happy using a basic free account and then upgrading to the paid account as your business grows.

Here are some of the considerations you’ll need to factor:

  • What’s the legal structure of your business? Sole-trader or limited company?
  • What do you expect your balance to be on a monthly basis?
  • How many transactions are you likely to be making?
  • Are your incomings and outgoings likely to fluctuate?
  • What other services and integration are you likely to benefit from?

If you’re a limited company, for example, you may not be eligible for a free business bank account.

Some banks and account providers will still offer fairly comprehensive services even for their free account customers. We’ve collated the best free business accounts and summarised their features.

Is it easy to switch between one account and another?

Most banks are signed up to the Current Account Switching Service. This makes it super easy to switch bank accounts. Once you’ve opened your new account, the CASS will take care of moving everything including your incoming/outgoing payments and your account balance. If anyone tries to pay money into your old account this will automatically be redirected. You will, though, want to ensure that you update any documentation with your new account details.

If you are overdrawn, you’ll need to check if this negative balance can be transferred, otherwise, you will need to clear it.

In order to switch your account, you’ll need the following information:

  • Two proofs of name and address (Passport, driving license, utility bills)
  • The details of your old bank account with the account number, sort code and card number.

Some of the digital account providers such as Tide and ANNA are not part of the CASS – as they’re not technically banks. This means you’d need to manually close your account and switch everything yourself. However, setting up an account is very easy and could be done on your phone in minutes.

Can only small businesses get free business bank accounts?

When you’re opening a new business account there’ll likely be questions about the nature and size of your business (e.g. turnover). Based on this, it may transpire that you’re better suited to another account option or, in the case of stricter high street banks, you may not be eligible. Ultimately, this screening process is geared towards ensuring you’re getting access to the services and account features you need.

A lot of the digital account providers are very much geared towards sole-traders and freelancers. There’s usually very little in the way of screening and eligibility making it quick and easy to get up and running.

What charges should I expect to pay on a free business bank account?

As highlighted earlier, most high street banks offer free day-to-day banking as part of their introductory offers. Once this over, you’ll pay a monthly account charge (ranging from £5 to £10 usually). Beyond this, you may also need to pay other fees depending on the terms of your account. This is where it can get complicated as the banks all have their own individual fee tariffs for the following:

  • Paying in cash and cheques
  • Credit in
  • Cash withdrawal (outside Europe)
  • International payments
  • Debit card payments

At this point, if you’re paying monthly charges and day-to-day banking fees it’s not really a free business bank account. Some of the banks do offer calculator options when you sign up to work out what you’re likely to pay.

The digital account providers offer free-forever account options – so you won’t find yourself switching automatically to a paid account after a period of time. However, the above fees tend to be in effect from the beginning. They’re typically a fixed cost (10p) as opposed to a percentage fee. 

Do free business bank accounts pay interest?

Most don’t. Instead, you’ll need to open a separate business savings account. This is usually easy enough to set up with your existing bank provider and can be done digitally.

Starling are one of the few business current accounts to pay interest with 0.05% AER on balances up to £85,000.

However, some of the banks will offer cash incentives for you to sign up.

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