Making the most of your business bank account

Your business bank account may not be something to which you've given much thought. While you're likely to have examined your options when you set up the account, have you considered them since?

Like personal bank accounts, business bank accounts have a range of features and, as a result, some may be more suitable for you than others.

This guide looks at those different features and how they could suit various businesses. It does not look at business savings accounts.

Want to know how to open a business current account? Read UK Finance's straightforward guide

Fees

Most banks charge you some kind of fee to hold one of their business accounts. How much this is depends on the charging model they operate.

For some business bank accounts, you pay a fixed monthly fee. Typical fees range from £5 to £10 per month. With these accounts, you're able to make a range of transactions and use various services without further charge, although this might not apply to all features of the account.

Other business bank accounts carry no monthly fee, but charge you for individual transactions, such as when you:

• deposit or withdraw cash
• make payments electronically, with your debit card or by cheque

Some banks waive the monthly fee on the condition that you pay in a certain sum of money every month.

It's also common for banks to offer new customers an introductory deal, such as no fees for 12 or 18 months. In these cases, it's always worth checking what you'll pay once the period of no fees expires.

Overdrafts

A business overdraft works like a personal overdraft in that it gives you continued access to funds even when you have no money in your account.

How much you can access depends on the overdraft limit your bank has set. It will take a number of things into account when setting this limit, such as your credit history and your business' turnover.

You might be able to increase your overdraft limit if the bank is satisfied you have the cashflow to cover the repayments.

Business overdrafts can be very useful if you need a short-term cash boost - for example, if:

• you have urgent invoices to pay
• your clients are unexpectedly late with their own payments
• you have sudden costs you weren't expecting

Interest rates

You must pay back in full any amount you take from your overdraft, plus interest. The bank will charge interest the entire time your account balance is below zero.

The interest rate on an overdraft is called the equivalent annual rate (EAR). It's a useful way to compare the cost of different banks' overdrafts.

The EAR tells you what interest you'd pay if you were to use your full overdraft limit for a whole year. Measured as a percentage, it's worked out using the following, across the year:

• The rate of interest you're charged
• How often you're charged it
• The effect of compounding the interest (charging interest on the interest itself)

Read the British Business Bank's guide to business overdrafts

Financial Services Compensation Scheme (FSCS)

If you're concerned about the risk of losing your business finance should your bank fail, it's important to know that the Financial Services Compensation Scheme (FSCS) is in place to protect you.

The FSCS is an independent fund regulated by the Financial Conduct Authority (FCA). If your bank collapses and can't repay your money, the scheme can compensate you for your losses, up to a limit of £85,000.

The scheme covers any bank that's authorised by the Prudential Regulation Authority (PRA) and the FCA. Its website has a register you can use to check if a financial firm is covered.

Learn more about how the FSCS protects small businesses

Other benefits

There are a number of advantages to holding a business bank account.

It keeps business and personal finances separate

Having a business bank account means you can keep your business finances separate from your personal finances. Not only does this make it simpler to control your business' cashflow, but it's also makes for better organisation when it comes to record-keeping and submitting your tax returns to HMRC.

And as some banks don't allow customers to use personal bank accounts for business purposes, it gives you a wider range of options when you come to choose an organisation to bank with.

It comes with special features

With business bank accounts, you're able to:

• get a company debit card
• process salaries
• accept credit and debit card payments
• conduct credit checks on businesses you work with

These are all features that wouldn't typically be included with any personal bank account.

It could give you access to a dedicated business adviser

When you open a business account, your bank may make a specialist adviser available for you. That person - sometimes known as a relationship manager - will have the knowledge and experience to be able to understand your particular business and circumstances and provide specific guidance according to your needs.

Read UK Finance's guide to opening a business bank account

Comparing accounts and providers

Today, there's a wide range of business bank accounts available in the UK. Deciding which option is most suitable for your business means considering whether to go with one of the well-known high-street banks or one of the newer 'challenger'/digital banks.

When comparing bank accounts, you might want to look at:

• whether there are introductory offers or incentives to open a new account
• what fee you'll pay for holding the account (including those that apply once any initial offers have expired)
• what the bank charges for individual transactions
• what your overdraft interest rate would be
• what additional features you'll have at your disposal

Switching business bank accounts

As with personal bank accounts, it can be useful to review your business bank account every year to see if you're still getting the most suitable service for your needs.

By comparing what your current bank is offering with what other banks could provide, you might be able to reduce some or all of the charges and fees you pay. Once you've identified a business bank account you'd like to switch to, you can use the free Current Account Switch Service.

As long as:

• the bank you're opening an account with is signed up to the service, and
• you're a small business, charity or trust with fewer than 50 employees and a yearly turnover under £6.5 million

you can make your switch through the service, and it will transfer all the payments from your existing account to your new account within seven working days.

Find out more about the Current Account Switch Service