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.

Savings accounts can also help you to build up an emergency fund, or buffer, which you can dip into if your business runs into cashflow issues or needs to cover an unexpected expense. Some businesses may also find them useful to put aside money for their tax bill later in the year.

Businesses can choose from easy access, notice and fixed accounts, depending on whether they want the option to quickly withdraw from their savings or not.

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 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.

Notice accounts

These 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. Because of this restriction, business notice accounts can pay a higher rate of interest than easy access accounts.

Fixed bonds

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.

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?

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.

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.

Limited companies also need to declare any savings interest on their tax return. These businesses need to pay corporation tax on their profits, and this includes any interest they earn on their savings.

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

Things to consider before applying

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 top business savings 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 on our charts to find the best business savings account for your business.