Many entrepreneurs choose to run their businesses using a personal bank account, which is completely fine. As long as you can receive, transfer, and deposit money to the account, it’s already capable of serving as the main account for your business.
However, there’s a popular saying that goes: “while stones can drive nails into wood, a professional carpenter will always use a hammer.” Just like a personal savings account, the stone is borderline capable of performing the task, but professionals prefer to use a hammer instead, which in this context, is a business savings account.
This analogy may lead you to wonder: what are the benefits of a business saving account that make it analogous to the hammer from the saying? In this article, I’ll show you what a business savings account is, how it differs from a personal savings account, and the benefits of business saving account for entrepreneurs.
What Is a Business Saving Account?
A business savings account is a bank account that’s optimized for businesses to build and maintain their earnings over a long period. It combines some of the best features of savings account with some features you’ll need in a business bank account for the perfect combination.
A business savings account is very flexible and you can use it however you think is the best. Most people use it as a savings account that it is, saving a portion of their business revenue for future use. For medium-sized businesses, that’s a pretty productive way to use a business savings account.
If you’re running a tiny business, however, you may have to invest the entirety of your revenue back into the business sometimes. In that case, the bank will be more like a current account, which is also possible with most business savings accounts.
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There’s no gold standard for savings accounts for businesses; most banks have different terms and conditions that apply to the business accounts you open with them. Reading the fine print carefully should let you know what you can and can’t do with the savings account.
You should also know that having a business account is not mandatory for you as an entrepreneur. If you think your business runs fine from your regular bank account, you can continue running it that way. However, there are many benefits of a business saving account that you may not want to miss out on.
Throughout the rest of this article, I’ll try to make you understand the major differences between a personal account and a business account. Then, you’ll learn about the benefits of a business saving account for entrepreneurs and mid-sized businesses.
Differences between Business Saving Account and Personal Saving Account
Promoting a business savings account to the average small business owner will evoke a question: “how is it any different from the personal savings account I’m using currently?” To be fair, the question is very logical, given the benefits associated with the average business savings account (see below).
However, a business account and a personal account aren’t the same, even if they’re both savings accounts and from the same bank. Note that the features of a business savings account differ from bank to bank, but we’ll use the features present in most to serve as a benchmark.
Here are some of the major differences between the average business savings account compared to the average personal savings account.
1. A business account has more flexible limits
When operating a personal bank account, there’s a limit to how much money you can transact using the account without having to explain things to the bank. However, such limits are more flexible with business savings accounts.
For example, in Nigeria, the UBA Zero Instant Savings Account has a maximum single deposit limit of N50,000, which is pretty small. If UBA were to have an equivalent business savings account, the limit would be much higher, or even technically nonexistent.
2. Business accounts require more documentation to open
At this point, you can create a personal savings account from your phone without having to produce any hard documents. If it were to be a business savings account, however, it wouldn’t be that easy. Not only would you have to prove that you’re a person, but you also have to prove that you indeed have a business.
Most banks will require you to provide your registration number or some other kind of business verification before continuing with the process of creating a business savings account. For a personal savings account, that’s usually not necessary.
3. Business accounts offer more legal protection
When running a small or mid-sized business, separating your business bank account from your regular bank account protects your finances in any case of legal trouble. If you lose a lawsuit and you have to pay a hefty fine, for instance, you can rest assured that you’ll only be losing money from your business account.
However, this protection only stands if there’s sufficient proof that you’re not being fraudulent in your dealings with the account. If you move tons of money away from an account immediately after having to pay a huge fine, for example, you may have to part with your personal finances.
Benefits of Business Saving Account
You already know that a business account is necessary for any business owner, but the question here is “why?” Why should you invest your time in getting a separate business savings account when your personal account seems perfectly capable of running your business effectively?
The benefits of a business saving account aren’t farfetched. Here are some of the reasons why having a separate business account is a must for every entrepreneur.
1. Excellent for business emergencies
Business emergencies are inevitable, regardless of how excellent a planner you are. Sometimes, really serious things happen, requiring you to spend tons of money suddenly; recall the Covid-19 pandemic in 2020.
Since business savings accounts are liquid assets, you can keep money in them as a safety net for unforeseen circumstances. If anything out of the ordinary happens, you can use the money from your account to settle unexpected expenses without having to borrow unnecessarily.
2. To earn interest
We all know the main reason why people use savings accounts: to earn interest. The fact that you’re creating the account for a business doesn’t mean you’ll be missing that feature; you’re even more likely to get better interest rates with a business account than with a regular personal savings account.
Of course, earning interest is only a big advantage when comparing business savings account to a current or checking account. If you’re switching from a personal savings account to a business savings account, the interest increment is unlikely to be high enough to make any significant difference.
3. To save for tax
The fact that you don’t like paying taxes won’t matter to the IRS when they come asking for their due. To avoid any issues with your business, you should endeavor to pay your taxes quickly as an entrepreneur.
But as an entrepreneur who has had to pay taxes, I can confirm that coming up with the money to settle your taxes isn’t the easiest thing in the world, especially in the early stages of your business. One way to ensure you don’t default is to save up before it’s time to pay.
Saving in a regular business current account sounds very impractical, so, you may want to open a savings account for that purpose. When you consider the fact that you get high-interest rates, you’ll be wondering why you haven’t created business savings account for your business already.
4. Better relationship with your bank
If you have a personal account with your bank, your bank sees you as a single ordinary person. That’s generally okay until you need a huge loan from your bank to grow your business. Trust me, putting your “ordinary” account forward for the loan just isn’t going to cut it.
However, having a business savings account will already signal to the bank that you’re a business owner. That way, you’ll be able to access loans and other entitlements that should be otherwise unavailable to you. In my opinion, this point is one of the best benefits of taking the time to create business savings account for your business, however small.
With all the advantages listed above, there’s no reason why you shouldn’t operate a separate business saving account for your business. The next question you should be asking at this point should be about the best business savings account for your business.
Best Business Saving Accounts for Entrepreneurs
There aren’t a ton of banks offering a business savings account in Nigeria. If you need one, you may have to go for either the Unity Bank Business Savings Account or the FCMB Business Savings Account. The former requires an account opening balance of N5,000, while the latter requires N10,000.
In addition to that, both accounts require you to maintain a minimum balance of N10,000, and the money will keep generating interest as long as you don’t withdraw more than four times in a single month.
In the United States, however, the Live Oak Business Savings account and the Axos Business Savings accounts are popular options. American entrepreneurs have far more options than Nigerians in this regard, so be sure to check out all your options before making a choice.
Should I Have a Business Savings Account?
Technically, you don’t need a business saving account to run a business. However, with the benefits of a business saving account listed above, there’s little justification for not operating one.
A business savings account is one of the essential business tools you never knew you needed. With insane interest rates, better safety nets for business emergencies, and a better relationship with your bank, there’s no real justification for lacking a business account.
Note that the benefits of business saving account mentioned above are those I regard to be general. There are more specific ones that your bank will offer that I’ve not mentioned; ensure to do your due diligence before picking a bank.