How do Business Checking Accounts Work?
A business checking account is similar to a personal one in many respects, but it comes with special tools and benefits designed just for businesses. Many different types of institutions, like banks, credit unions, and others, offer these accounts. Each place has its own rules, features, and things to keep in mind. This could mean needing to pay certain fees or keeping a minimum amount of money in the account. But in return, these accounts come with a bunch of helpful tools and extra benefits. Some banks even give you a yearly percentage on your business checking account, which is called an Annual Percentage Yield (APY).
A business checking account may allow you to do things like:
- Write checks in the name of your business
- Use a debit card at ATMs, online, or at merchants
- Get a business credit card,
- Make withdrawals, deposits, ACH transfers, and wire transfers
- Pay bills
- Pay employee salaries
- Pay for necessary expenses or make purchases
- Handle daily business transactions and expenses
Some business checking accounts have bonuses or welcome offers. Others come with money management or budgeting tools, free checks, positive pay (for checks), remote deposit capture, employee debit cards, and more.
Helpful for Getting Your Taxes Right
Ultimately, having a business checking account makes it easier for individuals to operate their company — and handle taxes — than if they were to use a personal account. With a separate business account, you won’t have to worry about mixing your personal and business expenses, either. This is particularly helpful if the IRS audits you.
Key Business Checking Account Terms and Features
- Positive pay: With this, a business can provide information about its written checks to help prevent fraudulent transactions.
- Debit card: Both the business owner and associated employees could get a linked debit card.
- Cash-counting limits: Some banks set a limit on how much cash a business can deposit without a fee.
- Bill pay: This allows businesses to pay bills online through the account.
- Items: Some accounts have restrictions on things like cash or ATM withdrawals, check or ACH deposits, and debit card transactions.
- Remote deposit capture: This feature lets businesses deposit checks remotely.
How to Get a Business Checking Account
Getting started with a business checking account is a simple process. Here's a general overview of what to expect:
- Gather the necessary documents. Before you can open an account, you’ll need certain documents and information. This includes your SSN or EIN, state ID, and personal identification and contact details (ex. date of birth and address). You may also need proof of address of your business, a partnership agreement (if applicable), and any relevant business licenses.
- Understand your business entity type. Many banks will also require information related to the type of business you have. The specific requirements depends on the entity type. For example, if your business is an LLC, you’ll need Articles of Organization documents. If you operate a corporation, be prepared to provide Articles of Incorporation documents.
- Compare different financial institutions. Next, compare three to five banks for their features, fees, and other perks. Some institutions have higher fees, balance requirements, or restrictions (ex. maximum monthly transactions) than others.
- Apply for the account. Once you’ve settled on an institution, you can apply for an account online or in person. The process typically starts by asking for basic personal information, followed by business information. You may also need to upload the necessary documents.
- Make a deposit. Some banks require you to make a minimum deposit to open the account. You’ll get this money back if your application is denied.
- Start using the account. Once opened, you can start using the account for your business needs. If you ordered checks or a debit card, you may need to wait for these to arrive before using them.
Choosing the Best Business Checking Account
When it comes to choosing a checking account for your business, here are some things to consider:
- Minimum balance requirement: You may need to maintain a minimum account balance to keep the account open. This might also help you avoid certain fees.
- Opening deposit: This is often required with business checking accounts.
- Fees: Business checking accounts tend to have higher fees than personal accounts, though you might be able to waive some of them. Common fees include monthly maintenance fees, cash-counting fees, and overdraft fees.
- Transaction limits: Certain banks impose limits on the number of transactions you can make in a month. Exceeding this limit could result in additional fees.
- APY or interest rate: Unlike savings accounts, checking accounts don’t usually have a high interest rate. But it doesn’t hurt to compare options to find the most competitive one.
- Cash deposit limits: Some banks limit how much money you can deposit into your business checking account without incurring a fee. This is primarily for cash deposits.
- FDIC insured: An FDIC-insured account keeps your money safe in the unfortunate case that the bank goes out of business.
- Branches and ATMs: Some institutions are digital-only, while others have physical branches. Both the number of branches and free ATMs can vary depending on the institution's size. This is important if you plan on doing in-person banking.
Business Checking Accounts: Pros and Cons
A business checking account is a great tool if you want to separate your personal and business finances. However, these accounts may come with more fees — and other downsides — than personal checking accounts. Here are the main pros and cons to consider.
Business Checking Accounts Pros
- Convenient way to separate business and personal income and expenses
- Simplifies business growth
- Makes it easier to apply for a business loan, business line of credit, or credit card
- Easier tax preparation and greater tax audit protection
- Having separate personal and business assets can protect your personal ones
- Makes your business look more professional
- May have money management, expense management, or budgeting tools
Business Checking Account Cons
- Typically come with higher or additional fees
- May have stricter requirements (ex., business license and related documents)
- Minimum account balance or maximum withdrawal limits
Should You Get a Business Checking Account?
You may want to consider getting a business checking account if you:
- Want to turn a freelance gig into a small business and gain legitimacy
- Are ready to look more professional to other businesses and clients
- Want to protect your personal income and assets from your business expenses and income
- Already have an LLC or corporation and want greater liability protection
- Want to make it easier to manage and prepare your taxes
- Think you’ll need business credit for future business financing options
- Can keep up with the minimum requirements and avoid some of the heftier account fees
The best reason to open a business checking account is the impact it has on your company’s reputation with clients and vendors. When you use a personal account, your name pops up on any transaction you make. Many companies and clients will feel wary when trading with somebody who operates under their name. They want to see the name of the organization they’re doing business with on their bank statements.
Ultimately, a business checking account is essential for every business owner, regardless of whether they operate as a corporation, LLC, sole proprietor, freelancer, or gig worker.
Average Business Checking Account Rates & Terms
Business checking accounts vary by bank or financial institution, but here are some of the best ones:
*Rates and fees subject to change
||2% (with a savings account)
||No monthly account fees, no ACH transfer fees, and no ATM fees
||No monthly service fees, ACH fees, overdraft fees, or wire fees
||No monthly fees or hidden fees
||Unlimited free US transactions
||$15 to $95 waivable monthly service fee (depending on account type)
||$2,000 to $100,000 (depending on account type)
||Up to 500 free transactions
||Fees vary by checking account type
||$100 to $3,000 (opening deposit)
||125 to 500 (depending on account type)
The Bottom Line
In the realm of business finance, the importance of a dedicated checking account cannot be overstated. It is the linchpin that separates personal and business finances, providing not only practical benefits like tax simplicity and streamlined transactions but also enhancing your professional image. The journey to find the ideal business checking account may seem daunting, but armed with the knowledge of account types, features, and considerations, you're well-equipped to make an informed decision. Remember, whether you're a solo entrepreneur or managing a thriving corporation, the right business checking account is the bedrock of your financial success. Take this opportunity to explore the top contenders in business banking and empower your enterprise for lasting prosperity.