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How to choose the best business savings account with decent interest rates?


Jan 14, 2023

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When running a business, you properly think about a current account that helps you operate your business, manage your employees, clients relationships and cashflow. It is typical that profits from business generation are extremely higher than personal finance, therefore, businesses can have a large amount of surplus cash in their current account. That is the reason why business savings accounts have become in demand. Continue to read our article to deepen your understanding in corporate finance and the benefits of business savings accounts.

How to choose the best business savings account with decent interest

How to choose the best business savings account with decent interest rates?

What are business savings accounts?

A savings account is a deposit account with a bank or another financial organization that pays interest. Similar to personal savings accounts, business savings accounts allow you to receive interest on the money you deposit, but the money can only be used by businesses, not for personal purposes. For entrepreneurs who have the ability to set aside a sizable sum of money and receive a competitive interest rate on the balance, business savings accounts might be an excellent choice.

06 reasons why you should need a business savings account

Some companies choose to set up numerous accounts in order to more effectively manage a variety of business operations, including tax payments. Here are six reasons why starting a savings account is advised, both for this reason and for other purposes as well:

1. Set aside funds to pay taxes

It can be difficult to monitor your cash flow if you keep all of your money in one account. Sometimes the account balance appears to be healthy, but your business still has a range of due obligations and prospective taxable income, which might cause you to overestimate the financial health of your business.

The burden of trying to have enough money on hand to fulfill your responsibilities, including paying any goods and services tax you owe, could be reduced by setting aside a portion of your income in a savings account.

2. Monitor business expenses

A transaction account is typically used to make payments to vendors and receive payments. Monitoring and managing expenses on your own might be challenging with all those transactions coming in and going out.

By setting money aside in a business savings account, you might be able to keep a better check on your regular expenditure and spot any possible areas for savings.

3. Give a better return on your funds

You will earn a higher rate of interest on your money if you save funds in business savings accounts than business current accounts.

Savings account interest rates might vary, but they are usually higher than those provided by a checking account. Therefore, even if it is only for a little period of time, putting excess income into a savings account may be beneficial, especially if there are no fees associated with the opening savings account process.

4. Access money for unforeseen events

One of the primary reasons small businesses fail is running out of cash. This could be mitigated by developing a consistent saving habit. Just like personal savings accounts, it’s a good idea to have money set aside so you can deal with whatever challenges or company circumstances may present.

Your savings account could also act as a safety net, giving you the money you need to survive in unforeseen circumstances like a decline in sales or the departure of a key employee or team member.

Having money accumulated in a business savings account allows you to evaluate the size of your cash reserves. If you find something you want to purchase that will help you manage or expand your business, have an unexpected bill, or both, this is fantastic news for you. Most business savings accounts enable you to rapidly access the money whenever you need it.

5. Help get credit

Having a saving money history also helps you build your business credit with banks. When you establish a consistency in setting aside your money, it shows that you are disciplined and have high credit. This means you can apply for business loans, overdraft and business credit cards.

Some business owners may question why they need to borrow money when they already have savings. It goes without saying that you can reinvest your money without taking on debt, but smart debts, particularly ones that are short-term and help your firm with working capital, may be quite beneficial. You can also earn profits from your business’s savings accounts.

6. Be prepared for upcoming projects and seasonal downturns.

When the money isn’t coming in as commonly, having quick access to cash can benefit your firm. You can prepare for things like seasonal cash flow gaps when cash is available.

06 reasons why you should need a business savings account

06 reasons why you should need a business savings account

Things you need to know about business savings account

Needless to say, the most important thing when it comes to opening a business savings account is the interest rate. Of course the rate for savings accounts is often higher than ones of business current accounts, however, what we are discussing here is that different types of business savings accounts have different interest rates, and which one suits you best.

Different types of business savings

You can choose from a variety of business savings accounts, each with their own benefits and drawbacks. Let’s check below business savings account types to choose the best business savings account interest rate for your savings profits.

Instant-access account

The customers who need quick access to their money should use this type of account. Instant-access accounts allow you to deposit and withdraw money whenever you like and pay interest on any money that is held in the account. Consider opening an instant-access account if you believe you might require immediate access to your savings.

Fixed-term savings account

These business savings accounts offer interest payments on a fixed-term basis, which means the interest rate you get on your investments is preset and won’t vary over the course of the term. You should carefully consider your decisions before selecting a fixed-term savings account because if you need to access your money within the term, you’ll be charged a penalty.

Notice savings accounts

These accounts function as a kind of hybrid between fixed-term and instant-access accounts. The money you deposit into these accounts is accessible, but you must notify the account provider before withdrawing any money.

Tax on business savings accounts

Will I pay tax on my business savings?

The answer for this question is yes. Any income from savings must be reported to HMRC and any relevant corporation tax must be paid if you own a business that is separate from your personal income.

The interest rates on business savings accounts are displayed as gross. In other words, it displays the interest rate before taxes are paid out.

If a business savings account doesn’t automatically deduct taxes, you’ll have to do it yourself by declaring them on your annual tax return, which may be the case for limited company account holders.

Are business savings accounts safe?

If your business savings account is held at an institution that is covered by the Financial Services Compensation Scheme (FSCS), then small and medium-sized enterprises will benefit from protection for their savings. Before requesting any account, check for the FSCS logo from the service providers.

The Financial Services Compensation Scheme typically covers you if:

  • You’re part of the unincorporated association
  • You earn a yearly turnover that’s less than £1 million
  • You’re a partnership
  • You own a limited company

Things you need to know about business savings account

Things you need to know about business savings account

Can I use a savings account as a business account?

To answer your question, you should differentiate business accounts and personal accounts. These 2 types of accounts that have similar functions but separate purposes.

First of all, a savings account feature is present in both types of accounts ( business account and personal one). You can open current accounts and savings accounts for both once you create a banking account number.

Second, checking or current accounts are the most typical company accounts for transactional needs. These bank accounts assist you in controlling the flow of money in and out of your company, whereas savings accounts serve to keep funds and earn interest.

Therefore, you can open a business savings account for your company, but they are not supposed to be the transaction accounts.

More about DNBC Financial Group

DNBC Financial Group is proud of our expertise in international money transfers, which has allowed us to help individuals all over the world by enabling them to move money between international companies, collect payments from clients globally, and reduce the risk of currency changes. We are one of the industry’s early pioneers in the fintech sector, offering online payment services with a 100% online registration process and 24/7 customer support.

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Note: The content in this article is for general informative purposes only. You should conduct your own research or ask for specialist advice before making any financial decisions. All information in this article is current as of the date of publication, and DNBC Financial Group reserves the right to modify, add, or remove any information. We don’t provide any express or implied representations, warranties, or guarantees regarding the accuracy, completeness, or currency of the content within this publication.