In the past, we’ve discussed the importance of building a solid credit history for your business. After all, your business credit is an integral factor in your financial standing and will have widespread effects on your ability to access loans, open lines of credit and attract investors. But you shouldn’t get so preoccupied with your business credit that you neglect to consider whether it’s worthwhile to explore a business savings account as well.
Although not nearly as ubiquitous as business checking, business savings accounts are becoming more and more popular among forward-thinking entrepreneurs. Many of the best banks for small businesses — such as Bank of America and Chase — have made savings accounts a key part of their product offerings, giving interested companies the opportunity to leverage their benefits like never before. You’ll want to do some research before committing to a business savings account of your own, so let’s explore a little bit more about what you can expect.
Taking Account of Your Savings
When you think of savings accounts, the first type that comes to mind is likely a personal one. Often designated for limited or very specific use, personal savings accounts may serve as receptacles for funds that you plan to apply at some point in the future for a long-term goal or in case of emergency. You might even rely on a savings account to put your money to work, as many savings accounts offer competitive interest rates. Business savings accounts work very much the same way, though they are (naturally) dedicated to business purposes only.
As you decide whether a savings account will be useful for your business, you will need to select which type of account will best suit your needs. You’ll find there’s a wide range of options to choose from, including simpler ones designed more for convenience than competitive rates. Note also that fixed-rate accounts typically offer the best rates. Be sure to weigh the pros and cons of various account types so you can select one that will make a positive impact on your business.
The Case for a Business Savings Account
Not all companies opt to open up a business savings account — but the only way you can know for sure if this move makes sense for you is to consider how it could underscore your long-term goals. Here are a few of the biggest selling points for embracing the idea of business savings.
To prepare for an emergency: Regardless of the industry you work in, your business is bound to hit its rough patches. In these times, having a business savings account can give you a place to turn for emergency funds when costs run high or resources are low. In many cases, tapping into your business savings may be preferable to taking out a loan. Liquidity is everything in the business world, and a business savings account is about as accessible as assets can get.
To leverage your interest: A big distinguishing factor between checking and savings accounts in general is that the latter earns interest. Even if you barely use your savings account, it accrues a bit of interest all the time (albeit at a rate usually under 1 percent). Yet your money continues to grow as it remains untouched; over time, this can add up to a nice bit of extra funding.
To prepare for tax season: We’ve all been there. It’s business as usual until the realization hits you: it’s almost tax time. So you scramble to file the paperwork on time and hope that you don’t owe Uncle Sam too much. But what if you already had funds earmarked for your tax payment? With a business savings account, you can stockpile some of your profits and hold them there until the time comes to pay up.
To protect your money: Business savings accounts have an extra level of protection compared to their checking account counterparts. Funds you deposit into a business savings account are protected by the bank and insured by the Federal Deposit Insurance Corporation (FDIC) up to the $250,000 limit. This provides you with peace of mind and can be a valuable incentive to store your funds there.
To build your credit: If your business has at least some of its funds in a business savings account, this might actually be a great way to boost your credit rating, making it easier to demonstrate your solid financial standing. Ironically, creating a savings account for your business to aid in availability of funds could make it easier for you to attract loans and other investments in the future.
Where to Turn
Let’s say you’re now officially interested in opening a business savings account. The next question on your mind is probably where to get started. With so many banks out there, identifying which ones offer the most competitive business savings benefits can be a real challenge. Thankfully, we’ve gone ahead and done the research for you. Taking into account a variety of factors, we’ve picked out the best banks for small business savings accounts, giving you an easy reference list that can guide you in choosing the best fit for your company.
If you engage in your own research as well, there are certain criteria you’ll want to look for. For instance, consider the features of a product beyond simply the APY (annual percentage yield) to find some real gems amidst the cloud of options. Many business savings accounts will sneak in hidden fees that balloon the cost and undermine the purpose of your account. Others will incorporate balance requirements that can complicate things (such as a mandatory minimum opening balance), or they may shirk on popular features like FDIC insurance. Keep an eye out for these and other practical concerns, such as the bank location and associated ATM network.
Hopefully we’ve been able to answer some of your questions about business savings accounts and helped you decide whether your business is ready to venture in that direction. It’s our mission to help your small business succeed, so we’d love to hear about your experience with business savings accounts and provide further clarification if necessary.