If you’re an entrepreneur, it’s a smart move to separate your business and personal finances. It’s even a legal requirement for some business structures.
A business bank account reinforces the credibility of your business, helps shield you from liability, and simplifies your taxes.
While you may be tempted to simply open the business account offered by your personal bank, it will ultimately help your company’s bottom line to be selective and shop around — you want to work with the financial partner that offers the most competitive services and features.
What Is a Business Checking Account?
A business checking account is a secure place for a business to store the short-term funds needed for day-to-day operations, like paying vendors and employees.
Banking transactions supported by a business checking account include (but are not limited to):
- Check and cash deposits
- Debits and check payments
- ACH and wire transfers
- Cash withdrawals
Business checking vs. personal checking
Business checking accounts and personal checking accounts are both designed for managing money, but serve different purposes.
| Business checking accounts | Personal checking accounts |
|---|---|
| Should be used to manage business finances only. | Should be used to manage personal finances only. |
| May support business-specific needs, like payroll or invoicing, in addition to standard banking transactions. | Support standard banking transactions, like deposits, debits, and bill payments. |
| May have relatively high monthly fees and balance minimums to waive those fees. | Typically have relatively low monthly fees and balance minimums to waive those fees. |
Why open a business bank account?
Opening a business checking account is a good idea if you own a small business or have repeat side hustle income. It’s also a fundamental step that limited liability companies (LLCs) and corporations must take to stay legally compliant.
If the thought of adding additional expenses to your business’s operating budget gives you pause, consider opening a business checking account with no monthly fee, minimal transaction fees, and flexible balance requirements.
Even a basic, no-frills business checking account will help you partition and better organize your business’s finances, and you can always upgrade later to a more robust account if your business grows beyond a free account’s features.
READ MORE: Can You Put Personal Expenses on a Business Credit Card?
How To Choose a Business Checking Account
The banking services that are essential for you will depend on the size and nature of your business.
But there are some key considerations that every business owner should keep in mind when comparing business checking accounts.
Fees and limitations
Business checking accounts typically have higher monthly maintenance fees than personal accounts — as well as higher minimum balances to waive those fees.
Other charges to watch out for are fees for using out-of-network ATMs, ACH transfers, or wire transfers.
Some banks or credit unions may provide a certain number of standard monthly transactions, (like deposits and withdrawals) for free and charge small fees for transactions beyond that limit.
These limitations may determine the type of account you choose. For instance, a $5,000 monthly cash deposit limit will be a trivial concern for Etsy sellers who accept all of their payments online; a food truck owner, however, may need a higher cash deposit ceiling.
READ MORE: How To Start a Business With No Money
Interest and rewards
Some business checking accounts pay interest on their balances.
An account may have a tiered APY (annual percentage yield) structure, in which different APYs are paid depending on the account balance. Or it may earn a flat APY on any balance level up to a certain maximum.
Other accounts offer rewards debit cards that earn points or cashback on purchases, although these are less common than interest-bearing accounts.
Branch access and digital experience
Digital-only financial institutions save a lot of money on overhead by eschewing brick-and-mortar branches, which allows them to offer lower fees and higher APYs than traditional banks and credit unions.
But you may still want the option of conducting at least some of your banking in person. If working face-to-face with a bank is important to you, you’ll probably want to open an account with either a local credit union or a major bank that has branches nationwide.
If you’re less attached to in-person banking, choose a provider that offers a flawless digital experience. It’s a red flag if a digital bank or fintech’s mobile apps have poor user reviews or its website is down when you try to check out its products.
Insurance
Deposits held in a business checking account are typically insured up to $250,000 by either the Federal Deposit Insurance Corporation or the National Credit Union Administration.
Some account issuers, however, may insure balances over $250,000 by distributing their clients’ deposits throughout a network of partner banks. If you have a large business, this allows you to keep your assets liquid without having to juggle multiple bank accounts.
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How To Open a Business Bank Account
Most financial institutions will allow you to apply for a business checking account either online or, if the issuer has brick-and-mortar branches, in person.
Online applications should generally take about 10 minutes or so to complete if you prepare in advance; in-branch applications may take a bit longer.
What do you need to open a business bank account?
The information you’ll need to open a business checking account will vary slightly depending on your business’s structure.
But in general, you should have at least the following documents ready when you apply:
- Your business’s legal name and address
- Employer Identification Number (EIN)
- State where the business was formed and the state of its primary operation
- Social Security numbers, dates of birth, and copies of drivers' licenses, state IDs, or passports for each business owner listed on the application
- Articles of organization
- Industry, number of employees, and annual revenue of your business
- Funds that meet the account’s minimum deposit amount, if applicable
TL;DR: Opening a Business Checking Account
Avoid mixing your personal and business banking. If you do, you could run into trouble at tax time — or worse, you could be breaking the law, depending on how your business is structured.
If your business is new, you can start with a simple bank account that just offers the basics but has no or low fees. Then, as your business grows, you may decide to upgrade to an account that has more bells and whistles for an experienced entrepreneur.
For more advice on managing your business, check out these episodes of the Erika Taught Me podcast:
- 99% of Business Owners Make This Mistake
- How To Make Your First $100,000
- $270,000,000 Worth of Business Advice
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