Business Savings Accounts

Business savings accounts explained

Business savings accounts have higher interest rates than business current accounts, and therefore offer a far better return on any surplus funds your business might have. A business savings account can ensure you're prepared for any kind of crisis that may hit your company, whether it's late payment issues, losing a key member of staff and sales suffering as a result, or needing to replace the building's heating system (for example).

You should consider how quickly you might need access to these funds. If your cashflow is healthy then you might want to tie your money into a fixed rate business bond. This will pay you a higher rate of interest but will not allow you to access the funds until the fixed term period has expired. This usually starts at a year going up to five years, although much shorter terms of one, three, six and nine months are also available. If you think you may need to regularly access your business savings, then a business easy access account could be more suitable. Meanwhile, a business notice account can provide a happy medium, allowing better rates of interest than an easy access account but with the requirement to give between seven days’ notice up to 180 days’ notice.

If you run a limited company, the business is its own entity and is separate from your personal finances. As such, you can't put cash from that business into a personal savings account – and in doing so, into your own name – as it would likely trigger various tax implications. Therefore, you need a business savings account that's specifically for your business' funds.

The exception to this would be if you're a sole trader. In this case, you and your business are one and the same and you'd be able to save business cash in a personal account – the business is solely in your name and essentially all money you receive from that business is yours, though it could still be wise to have a separate account for any savings you want to keep for business purposes.

The Financial Services Compensation Scheme (FSCS) is available to some business customers of banks that hold a UK banking licence (note a single licence could cover multiple brands). Deposits of financial organisations, public authorities and local authorities are not covered, but generally micro, small and medium-sized businesses should be covered. To find out more about depositor protection, read to our guide on the subject.

Occasionally, business easy access accounts include a short-term bonus rate. This means that for a set period of time you will earn a higher rate of interest than the standard savings rate. Once the term has expired the rate will drop; sometimes this can be a significant difference in rate. So, it’s a good idea to compare business savings rates before your bonus is due to expire.

Variable rate business savings accounts are typically easy access or notice varieties, and which one you choose will depend on your business needs. Easy access business savings accounts allow instant access to your funds in case of an emergency, whereas notice versions will require you to give notice to your provider (or result in loss of interest) before you can make a withdrawal, the trade-off being that you'll usually get a better interest rate – however, the keyword here is 'variable', which means providers can change the rate on both of these account types at any time.

They each have their benefits – easy access savings accounts allow you to get your hands on any surplus cash instantly, and you'll generally be able to make as many deposits and withdrawals as you'd like, with most having low minimum balances and few withdrawal restrictions. They don't pay the most competitive rates, but for flexibility, they can't be beaten.

Business notice accounts, on the other hand, come with a few more restrictions, with notice periods varying from seven days, but more commonly 30 days to 120 days. Some will allow you to access funds earlier, but there'll usually be a penalty, often in the form of reduced interest. That's why it's important to be truly organised with business notice accounts so you can give the notice period required, but for expenses such as tax bills – when you know the payment date and can plan your withdrawal accordingly – they could be ideal.

It's important to consider how much access your business might need to any saved funds before choosing an account, or you may want to split your deposits between several options to get the right mix of access and potential returns. You may even be focused on long-term growth and don't mind keeping a portion of business funds totally out of reach for a few years, in which case business bonds could be ideal.

Business bonds work in much the same way as fixed rate accounts for personal use, in that you can choose between a variety of terms and secure different interest rates accordingly. Generally speaking, the longer you're willing to lock funds away for, the higher the interest rate you'll receive, but you'll need to make absolutely certain you won't need access to your business' funds for the duration of any fixed term.

Terms typically vary from one to five years although a more limited number of products is available outside this range but note it’s very rare that providers will allow you to make any withdrawals before the maturity. You generally won't be able to add funds to such accounts, either, which means they're only suitable for businesses that wish to lock a lump sum away.

The trade-off for this complete lack of flexibility is that the rates on business savings bonds tend to be far better than their variable rate counterparts, and the rate is guaranteed, too, so you know exactly what your return will be by the end of the term.

All interest earned on business savings accounts is paid gross, which means that you'll need to account for any interest received so it is taxed appropriately. The tax you need to pay will depend on your business type and the interest you earn.

Sole traders use the personal tax allowance to calculate what, if any tax they need to pay on their savings. Any interest earned over the personal income tax threshold may be liable for tax at your personal tax rate, depending on your other levels of income. You should be ready to state how much interest you have earned in your annual self-assessment tax return. This is due by 31 January following your tax-year end.

Limited companies pay corporation tax, this is applied to any profits the business earns. Any interest earned on any business savings is included in your profit calculations. The tax you will need to pay is based on your financial year-end statement.

The key to getting the best business savings account for your specific business is to compare the options thoroughly, and that means considering everything from the headline rate to the smaller details of the account. Each one comes with different features, but here are a few general things you may want to bear in mind.

Occasionally, business savings accounts include a bonus rate – usually on easy access accounts. This is an additional rate of interest applied in addition to the main interest rate. It lasts only for a set period. After this you will only earn the main rate. Also remember that easy access accounts are usually a variable interest rate and the main rate (and possibly the bonus unless it is fixed) could be reduced at any time by the savings provider. 

Some business savings accounts are only available to specific types of business. For example, an account may only be eligible to a limited company or a sole trader. In other cases, it may only be open to certain sectors of business, such as charities or client accounts for solicitors.

Many business savings accounts can now be opened and managed online. This makes them as convenient and easy to use as you would expect from your business current account. However, there are some providers in the market who still only accept postal applications and instructions by phone or in writing. It may also be that you would prefer to have a branch-based relationship with your business savings provider, and generally the main high street banks and some building societies can offer this service.

The withdrawal restrictions depend on the type of business savings account; business fixed rate bonds typically offer no (or very limited) access during the fixed term, while easy access business savings accounts do not require any notice to make withdrawals. Notice accounts will allow withdrawals but only with the correct notice given (or a loss of interest penalty will likely be applied). Some easy access accounts may place a limit on the number of withdrawals you can make each year.

Most business savings accounts come with a minimum investment requirement for both the opening and for the lifetime of the savings account. This can range from as little as a £1 for an easy access account, with notice accounts from £100 and fixed rate bonds at £1,000 and above.

Business current accounts earn low or sometimes no interest at all for credit balances. Business savings accounts earn higher rates of interest and can bring better returns to your business compared to leaving these funds in your business current account.