If you’re a small business owner, a business bank account is a must. Most small business owners will benefit from opening a business checking account to separate their business and personal expenses.
But you may not have thought much about a business savings account. How do you know when it’s time to open one, and where should you open a business savings account?
Do I Need A Savings Account For My Business?
For some small business owners, a business checking account will be sufficient. But as your business grows, establishing a business savings account can be a smart move for your business finances. At a minimum, it can give you the opportunity to earn higher interest rates on your savings. But there are other benefits.
Here are seven signs it’s time to open a business savings account.
1. You want to be prepared for emergencies.
It’s inevitable that some crisis will occur in your business, whether it’s a customer who suddenly starts paying late, or the city decides to tear up the sidewalk in front of your business, or you lose a key employee and sales slip while you search for a replacement. The median and small business only has about 27 days’ worth of cash in reserve available to pay bills without additional revenues coming in (“cash buffer days”) according to research by the J.P. Morgan Chase Institute.
That’s not a large cushion. The sooner you start setting aside money for whatever crisis (or opportunity) comes your way, the more confident you’ll feel when something does go wrong.
2. You want to budget for periodic expenses.
Taxes (and tax preparation fees), insurance premiums, holiday gifts or bonuses, and a variety of other expenses come up just once or twice a year. Instead of getting stressed out when you have to write that big check, consider a different approach. Break the amount up into monthly payments, and then transfer that amount into a savings account each month. Paying them when they come due will magically become stress-free. Your financial institution may even make it easy for you to set up a separate savings account or savings “buckets” (sub-accounts) just for periodic expenses.
3. You want to earn more interest.
Many checking accounts don’t earn interest, or if they do, the interest paid is small. Savings accounts may allow you to earn a little higher Annual Percentage Yield (APY) on your savings. (Take heart: with interest rates rising, interest on savings accounts will go up too.) Just be sure you understand fees that may be charged if your balances dip below a minimum balance.
4. You don’t want to pay for overdrafts.
Chances are, your financial institution will offer you an overdraft protection. It’s convenient and can protect you from bouncing checks or dealing with the embarrassment of a payment that is denied due to non-sufficient funds (NSFs). But overdraft lines of credit aren’t free. You may be charged a fee for each transfer, and interest will accrue on the balance due, often at a fairly high rate.
If you can swing it, you may want to set up your own overdraft account by stashing money in savings and linking it to your checking account to cover any overdrafts. If there isn’t enough money to pay an expense from your checking account, the money will be transferred from your savings.
Set up online alerts so if a crook somehow accesses your checking account you can quickly report the fraud.
5. You want to keep your money safe.
Eligible business savings accounts are protected by FDIC insurance up to $250,000. Look for the sign that says “Member FDIC.” Note that all deposits owned by a corporation, partnership, or unincorporated association at the same bank are added together and insured up to $250,000, separately from the personal accounts of the owners or members. Credit union savings accounts are insured by the NCUSIF.
6. You want a financially healthy business.
Cash flow is an important indicator of business financial health. In addition to having strong business credit, a healthy balance in business bank accounts can be a sign of financial health. You’ll be better able to plan for future growth with confidence.
7. You want to be as creditworthy as possible.
You may find when you apply for small business financing that some lenders want to review bank statements, or even directly connect to your bank account information in order to verify your revenues and expenses. A healthy balance in a savings account will make your business more attractive to some lenders, and could even be the difference between getting approved or rejected for a small business loan.
Whether you decide to open up a savings account now or wait until later, you should have a business bank account of some type in order to separate business activity from your personal accounts. Having a savings account with a growing balance provides peace of mind that can helps you navigate the ups and downs of entrepreneurship.
Can I Open a Business Savings Account Online?
Absolutely. There’s always the option of opening a business savings account in person at the same bank where you hold your business checking account and/or your personal checking or savings account.
Another option, though, is to open an online banking account. This may offer you the ability to avoid high minimum balance requirements, save money on transaction fees, or even to earn a welcome bonus.
Here are some questions to ask when considering a business savings account:
- Is a minimum opening deposit required?
- Is there a monthly minimum account balance required to avoid monthly maintenance fees?
- What mobile banking services are available? (Mobile deposit or mobile app, for example?)
- How will you withdraw funds (debit card, ATM or online transfers, for example)?
Chase is an example of a bank that offers robust business checking and savings accounts.
Chase Business Total Savings is designed for businesses just starting a savings account. You’ll get mobile banking tools plus you can waive your savings account Monthly Service Fee when you link your account to Business Complete Banking. Chase also offers business certificates of deposit that can complement your checking account.
offers a business checking account along with an interest-earning savings account.
Business Savings vs Personal Savings Account
The first step for a new business is to open a business checking account so you can avoid comingling personal and business expenses. A separate business bank account makes it easier to track business income and expenses.
Some small businesses, sole proprietors and independent contractors may find a personal savings account sufficient. They can pay themselves from their business checking account and then save some of that money in their own savings account.
But as your business grows, it’s helpful to create a business savings account for all the reasons outlined in this article. A business savings account is part of growing a financially healthy business.
This article was originally written on October 30, 2018 and updated on February 8, 2023.