Freelancers juggle invoicing, deadlines, client demands, cash flow and more. With that much on your plate, you want to simplify as much of your work as possible. And one way to do that is with a business bank account. The right bank account can help you manage your business finances more smoothly and efficiently, and provide valuable insights into the health of your freelance business.
Why freelancers need separate accounts
There are several important reasons why freelancers need separate accounts:
- Taxes. As a freelancer, you must report your income and expenses to the IRS and typically you must also pay taxes (including self-employment taxes) to the IRS. As the IRS explains: “The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year.” There may be penalties if you fail to do so on time. By using a separate account you can keep track of your earnings and expenses and it should be easier to budget for those payments. It can make bookkeeping easier.
- Professionalism. When you’re invoicing clients, it will be more professional to ask them to make payments to your business (in a business name) than to you personally. You’ll want an account with the name of the business to deposit or receive payments.
- Financing. Cash flow is often a challenge for freelancers. Clients may slowly, pay late or— worst case scenario— not at all. That means you may need to find short-term financing in the form of small business loans to smooth out cash flow. Many lenders will require business bank account statements before they will provide business financing. You’ll be ready for that request.
What type of bank account do freelancers need?
Most freelancers will want to start with a business checking account and a business debit card. As your business grows, you may want to add a business savings account. Also consider getting a business credit card as it can help smooth out cash flow and offer valuable perks like cash back or travel rewards.
The account you choose doesn’t necessarily have to come from the bank or credit union where you hold your personal checking and savings accounts. Unless you expect to make regular cash deposits, you may not even need a business bank account located nearby. In addition to traditional financial institutions, there are many online banks and financial institutions that offer online business bank accounts to small business owners, including freelancers. These often offer robust mobile banking and mobile deposit features so you can use your account from anywhere you’re working.
We’ll share more tips on how to choose the right bank account in a moment.
Best bank accounts for freelancers
Ultimately the best business bank account for a freelancer is one you use! As you shop for one, here are some great options to consider:
Lili features no minimum balance and no hidden fees. You can get free overdrafts up to $200, create and send unlimited invoices and even get paid two days earlier when you use Lili to deposit funds from online payment platforms like Etsy or Upwork. Use the tax estimation tool to set aside money for taxes. You can also use your Lili debit card to withdraw cash for free at 38,000 ATMs in the U.S. and Puerto Rico.
Novo offers powerfully simple business banking through their free checking account with debit card access, no hidden fees and zero minimum balance requirements. Novo allows you to integrate with the business tools you already use, like Xero and TransferWise, and empowers you with a dashboard to see the financial health of your business at a glance. You can apply for an account in under 10 minutes on any device so you can start managing your business finances all in one place and on the go.
Bank America offers banking solutions to help grow your small business. Take advantage of accounts designed to fit a variety of needs.
There are a variety of reasons to consider Chase for your small business banking needs:
- Built-in card acceptance.You can also accept card payments anytime, anywhere in the U.S., and get transparent pricing with Chase QuickAcceptSM.
- Same-day deposits with QuickAcceptSM. Free up the cash you need to keep your business moving forward with same-day deposits at no additional cost.
- Alerts to help you stay on top of your account activity. Easy account management through Chase Business online and the Chase Mobile® app. Unlimited electronic deposits, ACH and Chase Quick DepositSM. Convenient access to 16,000 ATMs and more than 4,700 branches.
How to open a bank account as a freelancer
Freelancing can be one of the simplest businesses to start. You can often use your personal information and you don’t have to formally incorporate your business as an LLC or S Corp, for example. If you’re operating as a sole proprietor, you may use your Social Security number and personal financial information to get started.
Opening a business bank account can also be easy as a freelancer, especially if you open it with a financial institution that doesn’t require a lot of documentation.
Still, it can be helpful to take the following steps before you open a business bank account:
Get an Employer Identification Number (EIN) from the IRS if required.This is a type of Taxpayer Identification Number (TIN) that is used for certain businesses. It may or may not be required if you operate as a freelancer. (The IRS offers helpful information on getting an EIN here.)
Choose a business name and file a fictitious name or “DBA” for your business. This puts the name of your business on record with your state.
Get business licenses. You may be required to get a business license, professional licenses and/or occupational licenses, depending on state rules and how you choose to operate. Failing to do so could prove to be expensive so make sure you check the rules to ensure you comply.
What to consider when choosing a bank account as a freelancer
There’s no single best bank account for everyone, but you can find one that works for you by asking yourself a few questions about the features you need, and the price you are willing to pay for them.
What features matter to you?
Think about what account options you’ll need. Popular features may include:
- Low opening deposit requirements
- Subaccounts to help you budget for taxes or recurring bills
- A robust mobile app
- Mobile check deposits
- Integration with bookkeeping software such as quickbooks
- Convenient in-network ATMs
- FDIC insurance
- 24/hour customer support
- Text notifications
- Online bill pay
If you’re still in the startup phase, make sure the account you choose will work for a new business. (Usually that means a low initial minimum deposit, low fees and convenient access.)
What are the fees?
As a freelancer every penny counts, so make sure you understand fees and how to avoid them when possible. Even free business checking accounts will carry some fees!
Start by understanding what monthly balance is needed to minimize or eliminate monthly fees. Then read the schedule of fees that may include:
- Overdraft fees
- ATM fees
- Transaction fees
- Wire transfer fees
Note that you may be able to reduce or eliminate ATM fees by using fee-free ATMs (usually those within a certain network such as Moneypass ATMs) or by using a debit card and requesting cash back at the point of sale.
Just remember – you want to use this account strictly for business transactions. Always use your personal checking account for personal expenses. Not only is that a good business practice, but separating expenses makes it easier at tax time!
How to choose the best bank account for your freelance business
Again, the best bank account is the one you’ll use. So take time to think through the features that are important to you. Understand the costs involved. Narrow down your best picks.
But just as you’ve probably seen your clients get caught up in changing their minds or focusing on minute (and unimportant) details, don’t let analysis paralysis overtake you. Pick the best option you can and open an account so you can get on with building your freelance business.
This article was originally written on October 21, 2021 and updated on January 18, 2023.