What is a high-interest business savings account? A comprehensive guide

July 10, 2024
8
minutes to read
by
Justin Bohlmann
Table of Contents

Tired of your business earnings gathering dust in a low-interest account? It's time to unleash the power of compound interest and watch your profits soar. High-interest business accounts are the secret weapon your bottom line has been craving.

Every penny you earn is a testament to your hustle, your grit, and your unwavering commitment to your business. Yet, those same pennies are likely sitting idle in a bank account that's barely keeping pace with inflation.

The last thing you need is to worry about whether your savings are working as hard as you are.

The truth is, most traditional business accounts are robbing you blind with hidden fees.

Traditional business bank accounts have no, or very little, interest. with high inflation, leaving money in a low interest account is almost like leaving it to rot.  That's where high-interest business savings accounts come in -- a key ingredient to maximising profits and taking control of your financial future. Let's learn what is all about and how can we put your money to work for you.

Key points

  • Higher interest rates: High-yield savings accounts offer significantly higher interest, often 10 to 12 times more than traditional savings accounts.
  • Online banks lead: The best rates are typically provided by online banks, which have lower overhead costs and can pass those savings on to customers.
  • Easy transfers: Setting up electronic transfers between high-yield savings accounts and transaction accounts is straightforward, even if they are with different banks.
  • Factors to consider: When choosing a high-yield savings account for business purposes, look at initial deposit requirements, interest rates, minimum balance requirements, associated fees and loss of functionality like attached debit cards..

What is a high-interest business savings account?

A high-interest business savings account is a financial product specifically designed to offer substantially higher interest rates compared to standard business transaction accounts. Unlike business transaction accounts, which facilitate daily operations like paying bills and receiving payments, high-interest savings accounts are tailored for storing surplus funds or reserves.

These accounts are offered by a variety of financial institutions, including major banks, credit unions, and innovative online banks. Each institution sets its own interest rates, terms, and features, creating a competitive landscape where diligent comparison is key to finding the best fit for your business.

High-interest savings differences

The primary distinction between high-interest and standard business savings accounts lies in the interest rates. While standard accounts might offer negligible interest, often below 1%, high-interest accounts can boast rates exceeding 4% per annum. This disparity can translate to substantial earnings over time, particularly when considering the power of compounding interest.

For instance, if one holds $5,000 in a standard savings account with a 0.39% annual percentage yield (APY), the interest earned over a year would be $19.50. In contrast, depositing the same $5,000 in an account with a 4.5% APY would result in $225 in interest.

Compounding interest means that the interest earned on your initial deposit is added back to your balance, and in subsequent periods, you earn interest not only on your original deposit but also on the accumulated interest. This snowball effect can significantly amplify your savings over the long term.

To maximise interest earnings, it might be necessary to keep a savings account and a checking account separately. Thanks to fast electronic transfers, moving money between these accounts is straightforward and efficient.

Moreover, high-interest savings accounts often come with fewer features than traditional banks. These accounts usually don't offer checking accounts and may not provide ATM cards. Transactions such as deposits and withdrawals are typically conducted through electronic bank transfers or mobile cheque deposits.

Thriday is all-in-one banking tool.

Need multiple accounts to segment your revenue? Thriday customers can create up to 10 separate business bank accounts*, all for free. Withdraw cash from ATMs. Deposit cash at Australia Post via Bank@Post. Auto-allocate money between up to 10 bank accounts for profit, owners pay and tax. Plus, enjoy the benefits of high-interest savings accounts that can earn you significantly more than standard accounts.

How to use a high-interest savings account

High-interest business savings accounts are remarkably versatile, offering various strategic uses to enhance your financial management:

  • Emergency fund: Building a robust emergency fund is essential for weathering unexpected financial storms. A high-interest account can provide a safe haven for this fund, ensuring its growth while remaining easily accessible when needed. A good rule of thumb is to have three to six months' worth of operating expenses saved in your emergency fund.
  • Project savings: Whether you're aiming to invest in new technology, expand your premises, or hire additional staff, a high-interest account can be a dedicated space to accumulate funds for specific projects. The higher interest rate accelerates the growth of your savings, bringing your goals closer to fruition.
  • Tax savings: By depositing funds into a high-interest account strategically, you can potentially offset tax obligations. For instance, if you anticipate a substantial tax bill, depositing a portion of your income into a high-interest account can help offset the liability while earning interest simultaneously.
  • Cash flow management: Optimising cash flow is essential for maintaining a healthy business. High-interest accounts can help manage surplus cash flow effectively, ensuring it doesn't remain stagnant in low-interest transaction accounts.

What to look for in a high-yield savings account

  • Interest rate. Look at the interest rate the account offers. Determine if it’s a regular rate or a special introductory rate. Banks often change savings account rates, so it's important to check if the rate is only for a limited time. Understand if there are any balance thresholds needed to earn the advertised rate.
  • Required initial deposit. Check the amount needed to open the account. Make sure you’re comfortable with the initial deposit requirement.
  • Minimum balance required. Find out how much money you must keep in the account. Dropping below the minimum balance can lead to fees, which might reduce your interest earnings.
  • Fees. Understand any fees connected to the account. Learn if the bank allows ways to avoid these fees, such as maintaining a minimum balance or conducting a certain number of transactions.
  • Links to other banks and/or brokerage accounts. Investigate if you can link your high-yield savings account to accounts at other banks or brokerage firms. See if there are any restrictions on linking multiple accounts or waiting periods for new accounts.
  • Accessing your money. Look for available options to withdraw funds. Confirm whether you can use an ATM to access money from the savings account.
  • Deposit options. If you plan on depositing checks, check if the bank offers mobile check deposit through its app. Also, consider if you can mail in checks or deposit them at an ATM.
  • Compounding method. Understand how often the bank compounds interest. Banks can do this daily, monthly, quarterly, semi-annually, or annually. More frequent compounding can potentially increase your earnings. Comparing accounts by APY can also help, as APY already considers the compounding frequency.

When evaluating a high-yield business savings account, it is essential to review factors such as interest rates, required initial deposit, minimum balance requirements, and associated fees. Additionally, the ability to create links to other banks or brokerage accounts, options for accessing money, available deposit methods, and the compounding method used can significantly impact the benefit of the account.

How to open a high-interest savings account?

Opening a high-interest business savings account is generally a straightforward process:

  1. Compare: Research different financial institutions and their offerings, comparing interest rates, fees, features, and eligibility requirements. Utilize online comparison tools and resources to streamline your research.
  2. Gather documents: You'll typically need to provide identification documents for yourself and any business partners, business registration details, and proof of address.
  3. Apply: Most institutions offer online applications, which are often the most convenient option. However, some might require you to visit a branch in person.
  4. Fund Your account: Once your application is approved, transfer your initial deposit to activate the account and start earning interest.

If you're looking for a new option for your business bank account, Thriday is an excellent choice to consider. With Thriday, you can sign up for a $0 monthly business bank account* in minutes online and access a great range of features like multiple bank accounts and a Visa Debit card that automate financial admin to save you time!

Join Thriday for free: https://app.thriday.com.au/signup.

Where can Australian business owners find a high-yield savings account?

The Australian financial landscape boasts numerous institutions offering high-yield business savings accounts. Among these, Thriday emerges as a standout option.

Thriday is a leading Australian business finance management app that specialises in providing innovative financial solutions for businesses. Their high-interest business savings account offers competitive interest rates, flexible features, and a user-friendly digital platform, making it an attractive choice for modern businesses.

Other notable options include NAB Bookkeeper, an online accounting and bookkeeping platform offered by National Australia Bank (NAB). While not a dedicated high-interest savings account, it integrates directly with your NAB business transaction account and offers features like automated transaction categorisation, invoicing, and cash flow management, helping you to optimise your finances and potentially free up more funds to deposit into a high-interest savings account.

Frequently asked questions

Are my funds safe in a high-interest account?

Yes, most Australian banks, including those mentioned in this guide, are regulated by the Australian Prudential Regulation Authority (APRA) and participate in the Financial Claims Scheme (FCS), which protects deposits up to $250,000 per account holder per institution.

Is the interest rate taxable?

Yes, the interest earned on your high-interest business savings account is generally considered taxable income and should be reported on your business tax return.

What are the prerequisites for opening a business savings account in Australia?

To open a business savings account with Australian banks, the following are generally required:

  • ABN (Australian Business Number)
  • Identification documents for all signatories
  • Business financial documents

How often is interest compounded on business savings accounts in Australia?

Interest on business savings accounts is typically compounded monthly, but this can vary by bank. It's best to confirm the compounding frequency with the specific bank to understand how interest will accumulate over time.

Bottomline

A high-interest business savings account is a strategic asset that can significantly enhance your financial well-being. It's not merely a place to store funds; it's a catalyst for growth, a safety net for emergencies, and a tool for achieving your business aspirations.

By understanding the nuances of high-yield accounts, diligently comparing your options, and choosing a reputable institution like Thriday, you can harness the power of compound interest and unlock new avenues for financial success.

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Thriday customer

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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