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Step-by-Step Guide on How to Create a Business Savings Account

 

Business Savings Account.

Why should you get a business savings account or put your money into business savings bonds? 

Well, if your business has a large amount of residual cash currently sitting in your business account, then you may want to look for a business savings account or savings bonds, to get a better return on your funds.

That way if the unexpected happened, such as a loss in sales, or even a pandemic, if you have some funds in a business savings account, you should have the necessary cashflow to get by until things improve.  

 

Can I Use a Savings Account for Business? 

It is recommended (and crucial if you are a limited company) to keep any personal bank accounts separate from busines ones. 

How Do I Create a Business Savings Account?

The vast majority of bank will have a business section that looks after both current and savings accounts for businesses. The application process can usually be done online, but on occasions you may have to visit a branch to verify your identification etc, if you don’t already have an account with that particular establishment.

Do Any Business Accounts Pay Interest?

The good news is Yes They Do! The amount of interest will vary dependant on the different banks rates, and the type of savings account you open so it pays to shop around.

What is the Best Business Savings Account? 

The answer to this question depends on what you want to get out of the savings account?  Is earning interest your priority or do you want instant access?

What are the Different Types of Business Savings Account?

There are four different main types of business savings accounts:

  • instant access accounts
  • fixed term accounts
  • notice accounts
  • fixed-term bond accounts

Instant access, fixed term, and notice account interest rates tend to be variable. What this means is that they are linked to the Bank of England’s base rate – if the base rate goes up, your savings rate increases but if the base rate goes down, your return is diminished. Please note however that the decision to follow the base rate is a commercial decision and, if the base rate does go up or down, there is no legal requirement for the financial institution you hold your savings with to track it.

Instant Access Accounts

Instant access accounts offer business customers immediate and unpenalized access to cash saved. You can deposit or withdraw funds as often as you want with no need to give any prior notice to your bank.

Compared with other types of business savings products, the amount you can open a new account with is usually very low – in most cases starting at a pound.

Banks like savings accounts because they use your money to make loans to other customers and to make investments.

The longer you promise to not withdraw your savings, the better for the bank because it has more money to make investments and it can plan its own cash flow better. As a result, instant access accounts pay the lowest amount of interest because the banks are not certain how long they’ll be able to hang onto your money for.

Instant access accounts are best for smaller businesses which often find that:

  • they have a surplus of cash on which they’d like to make some money but
  • they also need to dip into those savings every so often to meet unexpected items of expenditure or find a deposit for new business equipment, for example.

Fixed Term Accounts

A fixed term account is a type of business savings account where you guarantee to your bank or your financial institution that you won’t need access to the cash you deposit with them for an agreed length of time.

Generally, fixed term accounts require you to pledge that you will not make any withdrawals for periods of time as short as 30 days and for as long as 5 years. As you’d expect, interest rates are generally always higher on fixed term accounts because the banks have possession of your cash for a pre-determined length of time, but this is not always the case – always compare as many products as you can.

Some fixed term business accounts do allow withdrawals before the end of the term in exceptional circumstances like the death of a sole trader or a partner in a business.

Notice Accounts

A notice account is a hybrid of an instant access account and a fixed term account.

Like a fixed term account, it offers higher interest rates than an instant access account. However, like an instant access account, it does not penalise a saver for withdrawing cash as long as the rules are followed.

If you want to make a withdrawal from a notice account, you have to give your bank or financial institution advanced warning that you want access to your company’s money. How much warning depends on the length of the notice – this could be anything from 15 days’ notice to one year’s notice.

Some notice account providers will not allow you to take your money out under any circumstances without the full notice period being served.

Others will allow you to withdraw money, but they’ll charge you for it – normally, the charge will be calculated based upon the length of notice you have to give. For example, if you have to give 90 days’ notice to withdraw money on your account but you need it now, the bank may:

  • not pay you interest on your balance for the 90 days following the withdrawal or
  • allow you to transfer the money you need out of the account less the equivalent of 90 days’ interest.

Fixed-Term Bond Accounts

Fixed-term bond accounts (sometimes called business bonds or business savings bonds) offer business owners the opportunity to save money over a set period of time with a guaranteed return on the company’s money.

With this type of account, interest rates tend to be fixed over the term of the bond. If the base rate goes down in the period of time before the bond matures, you may enjoy a greater return than if you have had taken out a business savings account with a variable rate.

You will not be allowed to withdraw any cash from your fixed-term bond account until the bond matures.

How to Create a Business Savings Account

The steps involved in opening a business saving account can vary between banks.

It’s advisable to start by researching the options online. While you cannot open a business bank account online for the majority of the major banks, your initial application can be made on your selected bank’s website.

 Make sure you have the following documents to hand when you open your account:

  • Proof of ID. All named company directors will need this. You can use a passport, national ID card or photo driving license.
  • Proof of address. This can be a utility bill, or recent bank statement. Alternatively, use a council tax statement.

The following details of your company will also need to be given:

  • Full business address (including postcode)
  • Contact details
  • Companies House registration number (for limited companies and partnerships)
  • Estimated annual turnover
  • In some cases, you’ll need to prove your own personal financial situation, with documents to show you have a clean credit and banking history.

Most banks will require a meeting in person before granting you access to a business account. You will be required to provide the documents listed above, and to provide photographic identification and proof of address for all directors and any substantial shareholders.

Be aware that the bank will also need to meet face-to-face at least one of your company representative’s in the UK to sign a bank mandate so the business bank account can be opened.

You should tell the bank if you have foreign shareholders and/or directors of your business and that you need a UK business bank account (rather than an international business bank account that’s held offshore).

When the bank account is open, you are free to use your local bank branch for your banking needs on a day-to-day basis.

If you’ve have had any experiences good or bad with your Business Savings Account provider, why not share them in the comments section below.

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Existing Business Step-by-Step Guide on How to Create a Business Savings Account