Business Savings Accounts

Business savings accounts explained

Whether you’re a sole trader, a limited company or a partnership, a business savings account could be a useful tool to help you get more from your business finances.

Business savings accounts typically pay a higher rate of interest than business current accounts, so businesses that deposit their surplus funds in a specific savings account will almost certainly get a better return on their money.

Why would a business have a savings account?

There are many reasons why a business would find it useful to have a savings account.

Earn interest

Rather than keeping any excess money in your business current account where it may not earn any interest, it’s worth putting it in a savings account to maximise returns. This means your money can grow in value and, if you deposit it in an easy access account, you can still draw on your funds when you need to.

Create an emergency fund

Savings accounts can help you build up an emergency fund, or buffer, which you can dip into when needed. For example, having some savings to turn to can be useful if your business runs into cashflow issues or needs to cover an unexpected expense, such as emergency repairs. Without any savings, your business may have no option but to borrow money to cover these expenses.

Prepare for tax bills

Whether you’re a sole trader or a limited company, you’ll need to pay some form of tax. A savings account is a useful place to put aside the money for your tax bill, whether it’s income tax, corporation tax or VAT, to ensure the money doesn’t get mixed up with your everyday finances.

Saving for new equipment

If you have big plans for your business and you’re planning to expand or purchase new equipment, for example, a business savings account can help you build up the money towards this goal.

Strategic planning

Savings accounts can help businesses plan and manage their cashflow more effectively. For example, seasonal businesses may deposit excess money into savings during peak times and use these funds to cover any shortfalls during slower trading periods.

Can a business earn interest on savings?

Like an individual, a business can earn interest on its money by putting it into a savings account.

This means that businesses can generate higher returns on their money than if they left it sitting in their business current account that is likely to pay little to no interest.

What are the different types of business savings account?

There are a range of business savings accounts available, depending on your preferences and whether you want access to your business funds.

Easy access business savings accounts

Easy access business accounts pay a variable rate of interest, which means the provider could change the interest rate at relatively short notice. However, businesses can usually add to and withdraw from their savings whenever they choose, which could allow them to build up their savings when business is going well or dip into their savings if necessary.

Pros

• You can access your money quickly whenever you need it.
• You can add to your savings as often as you choose.
• You could earn more interest if rates go up.

Cons

• Interest rates may be lower than on other types of accounts.
• Because interest rates are variable, you could earn less interest if rates drop.

Notice business savings accounts

Notice accounts also pay a variable rate of interest but, unlike easy access accounts, businesses need to wait a minimum number of days before withdrawing their money. This means you can still access your money if necessary but, because you have to wait the notice period, it removes some temptation of regularly dipping into your savings pot.

Pros

• Interest rates may be higher than on easy access accounts and, as they are variable, rates could increase.
• You can access your money if needed, although you have to wait a set period.
• You can continue to deposit money in your account after opening.

Cons

• You have to wait a certain number of days or months before accessing your money.
• If interest rates drop, you could earn less interest than first thought.

Fixed rate business savings accounts

Fixed business bonds pay a guaranteed rate of interest for the specified period which means the interest rate won’t fall. They may offer a higher rate of interest than variable accounts but, in return, businesses typically won’t be able to access money in the account until the end of the agreed term.

Pros

• The interest rate won’t change for the length of the fixed term.
• Interest rates may be higher than on easy access accounts.
• They can help you save towards longer-term business goals.

Cons

• You can’t access your money before the end of the term.
• You may not be able to add to your savings after your initial deposit.

Why should I have separate personal and business savings accounts?

Owners of limited companies or limited liability partnerships (LLP) need to keep their business and personal finances separate by law.

This means they can’t put any of their business funds into a personal account, so they need to have a business current account for their day-to-day finances and a business savings account for any leftover funds.

If you’re a sole trader or in a partnership, you’re not legally required to keep your business funds in a separate account to your personal funds.

However, it may still be worth opening a business savings account as it can be confusing to keep track of your business finances in your personal account. Having a separate business savings account can make it easier to see how much money your business has and help you to fill out your tax return for HMRC, for example.

Are business savings accounts protected by FSCS in the UK?

Business savings are usually protected by the Financial Services Compensation Scheme (FSCS) in the same way that personal savings are.

Under this scheme, up to £85,000 that your business has saved with a banking provider is protected should the bank fail. Bear in mind that this limit applies to each banking licence, so it’s worth checking which providers operate under the same licence.

If your business is a limited company or limited liability partnership, you will have an £85,000 limit for your business savings and an £85,000 limit for your personal savings per provider.

However, if you’re a sole trader or a partnership (which means you and your business are not legally separate), you’re only protected up to £85,000 per banking licence across both your personal and business savings. As a result, if you’re a sole trader and have £50,000 in personal savings and £35,000 in business savings with the same bank, you will reach the maximum level of FSCS protection for that provider.

If your business has more than £85,000 saved with one provider, the amount above the £85,000 limit won’t be protected under the FSCS. If you have more than this sum in savings, it’s a good idea to split it between different providers to make sure it’s all protected.

How does FSCS protection work if I have multiple business savings accounts with the same bank?

If you have more than one business savings account with a bank (or providers operating under the same banking licence), the £85,000 limit applies to the total of your deposits across all your accounts.

You don’t get a separate £85,000 limit for each individual account.

Do you pay tax on business savings in the UK?

You may need to pay tax on the interest you earn on your business savings. Savings interest is paid gross, which means you’re responsible for making sure you pay the correct amount of tax.

• Sole traders and partnerships need to declare any savings interest on their Self-Assessment tax return and pay the required amount of tax on anything they earn above their allowance. You can currently earn up to £12,570 in total (from any source) before paying any tax. If your income (excluding savings interest) is below £17,570, you can earn up to £5,000 in interest tax-free. Otherwise, the amount you can earn on your savings without paying tax will be determined by the Personal Savings Allowance (PSA). Note that, as a sole trader, the PSA applies to interest earned on your business and personal savings.

• Limited companies need to declare any savings interest on their tax return. They pay corporation tax on their profits, and this includes any interest they earn on their savings. The main rate of corporation tax is currently 25%, but you could pay a different rate depending on your business and the profit it makes.

Seek professional advice if you need help understanding your tax responsibilities.

How to choose the right business savings account

Every business is unique so it’s important to compare the features of different business savings accounts to make sure you choose a suitable option for your requirements. Some elements to consider include:

• What is the interest rate? Some accounts pay a higher rate than others, so it’s a good idea to compare options. Make sure you check if the headline rate includes a bonus rate that applies for a limited period.
• Are there any restrictions on withdrawals? Fixed bonds typically don’t allow you to withdraw money from the account until the end of the term, unlike easy access accounts. However, some easy access accounts may also limit withdrawals, so it’s worth checking for any restrictions.
• Is there a minimum balance required? While some providers may allow you to open a business savings account with a deposit of just £1, others may require a higher deposit of several thousand pounds.
• Do you want to deposit a lump sum or make regular deposits? Some providers may not allow you to add to your savings after opening, particularly if you open a fixed bond. If you want to add to your savings regularly, make sure you choose an account that permits this.
• How can you open and manage the account? Whether you want to manage your business savings account online, by mobile app or in branch, make sure you choose an account that offers your preferred method.
• What is the eligibility criteria? Crucially, you need to meet the requirements of an account to open it. Check the criteria as some accounts may only be available to certain business types or businesses in certain industries, for example.

What banks offer the best business savings rates?

The banks offering the best business savings accounts rates will vary as providers amend their products. Bear in mind that it may not necessarily be the providers you’ve heard of that offer the best rates.

Although it may seem an easy option, don’t just open a savings account with your business current account provider as this may not necessarily pay the best rate.

You can compare rates using our charts to find the best business savings accounts for your business.

Are online business savings accounts better than high street banks?

This depends. Online business savings providers may pay higher rates on their accounts than high street banks, but the interest rate isn’t necessarily the only factor to consider.

For example, while some businesses may find it more convenient to manage their savings accounts online, others may prefer to use a high street bank if they want the option to visit a branch to manage their savings in person.

Some businesses may also choose a high street bank because of its established reputation. However, online providers need to meet the same regulations and offer the same protection as high street banks, so your money is just as safe in an online account.

Can I open a business savings account as a small business or start-up?

Small businesses and start-ups can open a business savings account. There are accounts available to sole traders and limited companies of varying sizes, so there is likely to be an account that is suitable for your business.

Make sure to look at the minimum deposit requirements of an account as some only ask for £1 while others ask for a hefty £20,000, which may not be possible for small businesses just starting out.

How long does it take to open a business savings account?

It could be relatively quick to open a business savings account. If you open an account online, it may only take a few minutes to fill out the application if you have all the required information to hand.

Depending on the provider and the complexity of your business, you may be able to open an account within one business day. However, it could take several working days before your application is approved if the provider needs to conduct further checks or requires more information.

What documents do I need to open a business savings account?

When you open a business savings account, you’ll need to provide certain personal details including the name and residential address of any directors and partners, for example.

You’ll also need to tell the provider some information about your business, such as your business name, address, current account details, annual turnover and company registration number (if applicable).

The provider will verify your business through various checks as part of the application. It may ask for some supporting documents, such as proof of identity and address for the directors, but it will tell you if you need to provide any further information or documents.

Can my business have more than one business savings account?

Yes, your business can have multiple business savings accounts. For example, you could choose to have one or more easy access accounts as well as a fixed bond.