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Best business savings accounts

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A business savings account can help your business earn interest on money that isn’t needed right away. Here we explain more about business savings accounts and why separating your business’s savings from your personal savings can help organise finances while growing funds.

What is a business savings account?

Business savings piggy bank

A business savings account is a way for your business to earn interest on any money that it doesn’t need to use right away.

Working like a personal savings account, a business savings account lets you keep your money in a separate account to your business current account, where it could generate more interest than it might in a standard current account.

With a business savings account you can potentially see a return on your savings while also, with some types of savings accounts, keeping the money easily accessible for when it’s needed.

Having a business savings account helps you earn money on any funds you don't need to use right away.

Can I use a personal savings account for my business?

The simple answer is no. For starters mixing personal and business finances can have legal and tax implications. It can complicate accounting, tax reporting, and might even raise red flags with HM Revenue & Customs (HMRC). Secondly, if your business is structured as a limited liability company (Ltd), using personal funds may undermine the limited liability protection. Keeping personal and business finances separate helps maintain the legal distinction between you and your business entity.
Using a personal savings account for business purposes can also make it more difficult to track business expenses, income, and profitability. It can create confusion during tax time and when preparing financial statements.

Why do you need a business savings account?

A business savings account offers a range of features which, when combined, could benefit your business’s ability to deal with unforeseen events. 

1. Interest

Your business could earn interest on any money deposited into the savings account and the rates are usually always better than what you might find on a standard business current account. This allows you to grow your savings over time too.

2. Keep your finances separate 

Keeping your business finances separate from your personal finances helps maintain a clear line between the two - meaning you can be far more organised when it comes to accounting and financial management. 

3. Security

Keeping your money in an account is far safer than keeping large amounts of cash on hand. Plus most savings account providers are part of the Financial Services Compensation Scheme (FSCS), meaning should the bank or building society fail, the FSCS will compensate you up to £85,000. Keep in mind that if you are a sole trader, the £85,000 cover is across all personal and business accounts across the institution and not separated out as it would be for a limited company or partnership.

4. Planning

Keeping funds in a business savings account allows you to plan for future investments, emergencies and the expansion of your business. 

5. Access your money 

Depending on the type of business savings account you opt for, funds can remain accessible for when you might need them, whether it’s for an unforeseen expense or to seize an opportunity. 

If your business is a limited company then you will not be able to use a personal savings account in just the same way a limited company cannot use a personal current account. This is because a limited company is a separate legal entity and so its finances must be kept separate.

What business savings account should I get?

There are a range of different business savings accounts available, each offering different features and rates.

They include:

High-interest business savings account

A high-interest account tends to offer a more competitive interest rate compared to standard business savings accounts. They are designed for businesses looking to maximise the growth of any money not needed right away.

Instant access business savings account

An instant access business savings account allows you to access your money quickly and without restrictions. This flexibility makes it easier to manage business cash flow and respond quickly to any unexpected bills.

Notice business savings account

A notice business savings account requires you to give advance notice before you can access your cash. The notice needed will depend on the terms and conditions set by the account provider, usually ranging from a few days to a few months. In return, you tend to get higher interest rates.

Fixed term business savings account

A fixed term business savings account will have a predetermined fixed period for which you cannot withdraw your money. The period will vary and will be agreed when you open the account. They usually have some of the best interest rates on offer, but they come with little flexibility when it comes to accessing the money.

How to compare different business accounts

When you’re thinking about which business savings account might be best for you, it’s important to understand your business's circumstances and goals. Make a note of your business’s cash flow, look back through statements to see if there were unexpected bills you needed to pay and establish how much money you can afford to set aside. 

Once you have a good idea of your business’s finances, you can start to think about what type of savings account might be best for you. If you have plenty of cash that you know you won’t need to spend for a while then a fixed term business savings account account might work for you. If you’re a new business owner and are uncertain about the future, then an instant access account might be better. 

Whichever account you decide to go for, it’s important to make sure you understand the terms and conditions of the account. If you’re looking for a specific interest rate deal, then it’s equally important to act fast as deals and rates change all the time. To avoid delays, make sure you have any relevant information needed to open the account to hand.

How to apply & eligibility criteria

Business man eligibility

The eligibility criteria will differ depending on the account provider, but in order to be eligible for most business savings accounts you'll need to be:

  • Over 18

  • A UK business 

  • A UK resident 

  • Able to provide contact details and address information

As some interest rate offers may be time-sensitive, it’s a good idea to have this information to hand and to check any additional eligibility requirements with the provider you want to go with. 

Once that’s all in hand - you can usually apply to open a business savings account online or in branch. The bank or account provider will take you through a series of steps, asking for details about you and your business. Once that’s all complete and you’ve provided the relevant documentation the account should be open and ready to use within a couple of days.

Paying tax on business savings accounts

As with anything relating to business finance, understanding your tax obligations is crucial. Not only can it help you maintain cash flow without any unforeseen shocks, it helps you keep your business finances organised all year round. 

Any interest made on your business savings is paid without any tax being deducted. That means you will have to declare any interest earned as part of your annual tax return and then pay any tax you owe on it. 

There are a couple of additional distinctions, depending on whether you’re a sole trader or a limited company. 

Sole traders pay tax on any money made above the standard tax-free personal allowance, which is currently £12,570 for the 2023/24 tax year. That means you can earn up to £12,570 - including any interest made on savings - before you have to pay any tax. If your income (excluding savings interest) is less than £17,570, then you can earn up to £5,000 in interest without being taxed on it - this is known as the starting rate for savings. Any tax you owe will be due to HMRC by 31 January, following the end of the tax year.

Limited companies pay corporation tax on any profits and that includes any interest made on savings. Typically you pay your tax bill to HMRC within nine months of the end of your accounting period.

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