So you’ve decided to go ahead and get a business bank account. Do you really need a business savings account too? It may actually be a very wise move.
Every year, many self-employed people receive a tax bill and and don’t have the money to pay it. It’s a really unpleasant situation to find yourself in, but easily prevented by putting a percentage of your income in a savings account throughout the year. It’s best to tuck this money away as soon as you’re paid and consider it the property of the tax people so you aren’t tempted to spend it!
Other reasons for having a business savings account are to help you manage your money better. For example, most self-employed people aren’t paid regularly throughout the year, so it makes sense to put the surplus from a good month in a savings account ready for those months where you don’t get paid at all. And although interest rates aren’t exactly great for savers at the moment, you’re likely to get more interest on a savings account than a business current account. Finally, if you’re saving up for a big investment such as a new piece of equipment, it makes sense to put that money in a savings account until you need it.
Like personal savings accounts, there’s a wide selection of business savings accounts including bonds, tracker accounts, notice accounts and easy access accounts. If you’re not sure what those words mean, here’s a quick explanation:
- Bonds – a bond is an ‘IOU’ (‘I owe you’) where you, the investor, agrees to loan money to a company or government in exchange for a certain interest rate over a fixed term. You’re not allowed to withdraw money during that fixed term.
- Tracker account – a tracker account is a savings account where the percentage rates are tied to or track the base rates of e.g. the Bank of England.
- Notice account – a savings account where you need to give an agreed notice period (e.g. 45 days) before you withdraw your money or else you’ll need to pay a penalty
- Easy access account – allows you access to your money straight away
The more flexible the account, the lower the interest rate is likely to be. Also, the bigger the initial deposit, the better the interest rate tends to be. Some accounts need an initial deposit of over £1000 and others just £1. Read the features of the account carefully before signing up as some accounts limit the number of withdrawals you can make a year.
As with any bank account, you need to think about your requirements and pick the one that suits your business the best. You may also need to plan ahead if you want to avoid penalties for withdrawing your money too soon or too frequently from your account.
Today, business accounts – both current and savings – can easily be researched and opened online, so it’s easy to shop around for the account that’s right for you and your business.