4 Types of Business Bank Accounts

March 22, 2024
minutes to read
Jelina Rosin
Table of Contents

Are you struggling to understand the advantages and trade-offs between different types of bank accounts and how they might align with transaction volume, cash flow needs, and business goals? You're not alone! 

Choosing the right business bank account is a foundational decision for any entrepreneur or business owner. But with so many options, it's easy to feel overwhelmed. This guide will demystify the world of business banking. 

We'll cover what business bank accounts are and the four main types and answer your most frequently asked questions!

What is a Business Bank Account?

Imagine your business needs a safe and organised way to handle its money. That's where a business bank account comes in! 

The primary purpose of a business bank account is to separate money and transaction data from your own personal accounts. Read the difference between business bank accounts and personal accounts and why you need to separate them. 

Sure, a business bank account handles the basics of storing and managing money, but the business-specific insights you gain make it a valuable business tool. Here's how it helps you make smarter operational decisions:

  • Staying on Top of Bills and Predicting Expenses:
    Your account gives you a heads-up if you're running low on funds before a big bill is due, preventing cash flow issues that can disrupt business.
    It allows you to anticipate when you'll have extra money for things like replacing equipment or buying in bulk for better prices.
  • Pinpointing Expenses and Maximising Profits
    Your account shows where the money goes. Are there subscriptions you don't use or ways to get better deals from suppliers? These savings boost your bottom line.
    Knowing which products or services bring in the most money helps you focus your efforts on what works best, increasing profits.
  • Planning for Growth
    Your account history provides the data needed to show lenders you're a good candidate for a loan when it's time to expand.
    Seeing your regular income and expenses gives you a realistic picture of whether you can afford to hire, rent a bigger space, or confidently invest in new endeavours.

Here at Thriday, we're big believers in the Profit First cash flow management method. If you implement Profit First one of the simplest ways to know if your business is healthy is if your OpEx account is growing. See how and why Profit First works with our Auto-Allocations feature here.

What are the Different Types of Business Bank Accounts?

1. Business Transaction Account

A business transaction account is a must-have for all businesses, particularly those with a high volume of financial transactions. It provides core features like debit cards, online bill payment, and mobile banking. 

Look for accounts offering unlimited transactions to accommodate busy operations, and consider integration with your accounting software for streamlined record-keeping. It's important to be aware of monthly maintenance, transaction fees, ATM fees, and overdraft charges, which can be waived for some accounts if you maintain specified minimum balances.

2. Business Savings Account

A business savings account is a smart choice for any company looking to establish a financial safety net, save for taxes or specific investments, or simply grow its funds at a higher interest rate than a standard checking account.  

Keep in mind that there may be limits on the number of withdrawals allowed per month.  Watch for monthly maintenance fees or excess withdrawal fees, as well as tiered interest rates based on your balance. Before opening a business savings account, determine whether your business needs immediate access to all of its funds or if you can park some for greater earning potential.

3. Business High-Interest Savings Account

A High-Interest Savings Account is a suitable option for companies seeking higher interest rates than standard savings accounts, where you're prepared to have limited access to your money for a given period. 

High-interest savings Accounts often blend features of transaction and savings, offering limited withdrawal capabilities alongside potentially better interest rates than standard savings accounts. Be mindful of monthly maintenance fees, transaction limits, and excess withdrawal fees, which are common with MMAs.  

Ensure the interest rate earned justifies any additional fees you might incur, and carefully investigate specific withdrawal limits and penalties, as these terms vary considerably between financial institutions.

4. Merchant Account

A merchant account is essential for any business that wants to accept credit or debit card payments, whether those transactions occur in person or online. This type of account isn't a traditional bank account but rather a service that works with payment processors to facilitate secure card transactions and transfer funds into your business bank account. 

Merchant accounts can have complex fee structures, so carefully compare options.  Look out for transaction fees, monthly fees, and chargeback fees for disputed customer transactions. Consider your business's payment processing needs – including the specific types of cards you want to accept, your expected transaction volume, and whether you need an in-store terminal, an online gateway, or both.

Frequently Asked Questions

Q: Are there fees for business bank accounts?

A: Yes, fees vary. Some banks offer "free" accounts with limitations or balance requirements. Scrutinise the fine print!

Q: Do I need separate business and personal accounts?

A:  Absolutely!  This protects your personal assets, simplifies taxes, and makes your business seem professional.

Q: How do I choose the right business bank account?

A: Think about:

  • Transaction volume (how many checks, deposits, etc., do you do monthly?)
  • Cash flow needs (Do you need immediate access to all your funds?)
  • Business goals (Are you saving for something big?)
  • Bonus Tip: Don't be afraid to shop around! Banks offer different rates, fees, and features. Comparing them ensures you get the best deal tailored to your business needs.

Q: Can I open a business bank account online?

A:  Many banks allow you to start the application process online. You may need to visit a branch in person to complete the process and provide the necessary documentation.

Q: What documents do I need to open a business bank account?

A: Requirements vary but typically include:

  • Business formation documents (articles of incorporation, etc.)
  • Employer Identification Number (EIN)
  • Government-issued ID for the business owner(s)
  • Proof of business address

Choosing the Right Account: It's Your Turn!

Now that you have a better understanding of the different business bank account types, it's time to take action.  Remember these key points:

  • Analyse your business needs. Look at your transaction patterns, cash flow, and growth goals to determine what kind of access and features you need.
  • Do your homework. Don't just settle for the first bank you come across. Compare several, paying attention to fees, interest rates, and additional service offerings.
  • Ask questions. Bank representatives are there to help! Clarify anything you don't understand to make an informed choice.

The right business bank account is a powerful tool in your entrepreneurial toolbox. By selecting the one that aligns with your specific needs, you're setting your business up for long-term financial success.

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360 AFSL 241167 (Regional Australia Bank). Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you. Team Thrive No 2 Pty Ltd ABN 26 677 263 606 (Thriday Accounting) is a Registered Tax Agent (No.26262416).

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