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Business bank account: Online-only or traditional bank?

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More than 70% of Americans access their bank accounts most often via online and mobile platforms. What may feel like a modern convenience for personal finance management has become an essential tool for startups. Opening a business bank account online lets entrepreneurs protect their capital, earn interest, and manage funds anywhere.  

Many startup founders can’t qualify for traditional bank accounts due to their non-standard income sources or “thin” business credit profile. Online-only banks have removed many of these barriers to entry. Application and approval can take as little as 10 minutes. Some online banks are fee-free and offer better interest rates than conventional banks, which also offer online business bank accounts. 

Let’s look at the services, benefits, and limitations of different online banking options.

How to choose a business bank account online

The first step in finding the right online business bank account is self-evaluation. Your startup may need a simple checking account with debit cards for multiple employees and no-fee wire transfers. Or perhaps, you’ll search for a savings account with balance requirements under $10,000 and a free mobile app. 

Although online financial management is a time-saver, some platforms make banking easier than others. Don’t forget to take your other software and workflows into account. For example, if you rely on accounting software or a receipt-scanning app, you need an online business account with built-in app integrations. Without it, your new service could actually double your data-entry workload and complicate bookkeeping and taxes. 

Head into the comparison process with a list of priority features and functionalities to simplify your search. 

Do you need a business checking account, a savings account, or both? 

Storing your funds in a business checking and savings account lets you separate personal and business finances at all levels. It also gives startups access to financial products that are particularly helpful in the early stages, such as lines of credit, business credit cards, and loans.

An online checking account makes it possible to auto-pay regular expenses and quickly transfer funds. You can access cash seamlessly with a debit card, checks (depending on the bank), or electronic payments. You’ll interact with this account on a daily basis. It’s important to choose one with low account fees (or fees that can be waived) and fewer transaction limits. 

Growing startups that want to maximize their capital invest in a business savings account with a generous annual percentage yield (APY). It’s a lucrative way to store excess funds, but your funds will be less accessible than with a checking account. ATM withdrawal limits, special rules, and fees are common. 

Most startups find a savings account worthwhile. In our guide to business savings accounts, we go into depth on the most popular options like money market accounts and certificates of deposit. But you don’t have to juggle multiple accounts — a cash management account includes both checking and savings tools. 

Online-only banks vs. conventional banks

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Before you start comparing individual offers, there’s a quick way to narrow the field. There are major differences between online banks and conventional banks that offer online accounts. You should also consider your specific business needs. Read on to find out how these options compare and discover a third, non-banking option. 

Online-only banks

Digital banks are relatively new to the industry, but they’ve grown in popularity with small businesses thanks to their ease of use. They operate without physical locations while offering most traditional bank services like debit cards, wire transfers, ACH payments, invoicing, bill pay, and more.

Here are the advantages of online-only banks:

  • Higher interest rates: The average APY of online banks regularly outstrip conventional bank rates. The best savings accounts can offer as much as 1% to 2% more than accounts with large banks. Keep in mind that favorable rates may be harder to find in the new COVID-19 environment. The federal funds rate has been slashed to zero, causing banks to lower their rates, too. 
  • Fewer service charges: The lack of overhead gives online banks a cost advantage over their brick-and-mortar counterparts. Banks pass these savings on to customers in the form of low or no monthly fees and other perks. 
  • Faster approval: Online banks offer simplified applications and ask for less paperwork, whereas traditional banks regularly take weeks to deliver a decision.
  • Better digital experience: Online bank accounts can connect seamlessly with your payment processing accounts, offer intuitive mobile banking, and integrate with other tech services. 
  • Secure funds: Technology-driven banks are more likely to offer extra layers of encryption and fraud monitoring. In addition, most online-only bank funds are federally insured up to $250,000.

But, there are also disadvantages of online-only banks:

  • No cash deposits: Without physical banking locations, it’s difficult, costly, or sometimes not possible to deposit cash. You’ll have to choose an online bank with ATMs that accept cash. This may be a non-starter for cash-driven startups.
  • Fewer check services: Many online banks don’t offer checkbooks, although some have native bill pay services that will mail checks for you. Check deposits are possible, but you’ll either have to take a picture of your check or mail it. 
  • Less ATM access: If you’ll use the ATM frequently, be sure to choose a bank that’s part of a wide ATM network to avoid constant withdrawal fees. 

Conventional banks and credit unions

Online banking and mobile banking used to be limited to online banks and alternative financial institutions. Now, brick-and-mortar banks and local credit unions serve customers online, too. 

The advantages of conventional banks include: 

  • More service options: In addition to the standard, everyday services, traditional banks also provide things like notary services, foreign currency, safety deposit boxes, and branded checks. Startups can also simplify their operations—and may get a better rate—by using their bank’s merchant services. 
  • Financing opportunities: As direct lenders, traditional banks offer some of the lowest interest rates on term loans. By striking a relationship early, you can reap the rewards later when you’re ready to apply for credit. Banks typically offer better terms and fewer restrictions for their own customers. 
  • Face-to-face service: If you value the ability to walk into a bank and talk with the person managing your account, traditional banks are the only option. In-person business meetings can feel more personalized, and many entrepreneurs prefer them.

And here are the disadvantages of conventional banks:

  • Lower approval rates: Small business owners struggle to even get entry-level business accounts with big banks and credit unions. And although applying online is convenient, it doesn’t necessarily improve your chances of approval.  Compared with online banks, traditional banks tend to place more weight on factors like credit scores and income levels, which aren’t favorable for startup owners.  
  • Higher fees and lower rates: Excessive fees are one of the seven biggest banking complaints described by startup founders. Conventional banks generally charge higher fees on both checking and savings accounts. Account balance requirements may also be out of reach for startups. And when you compare interest-bearing accounts, online banks consistently offer the highest APYs. 
  • Limited support: If your bank requires you to come in for certain transactions or services, it can be incredibly inconvenient. And while online-only banks may guarantee 24/7 phone support, traditional banks could have limited after-hours service. 

Now that you’ve seen this side-by-side comparison, it should be clear which account features are your top priority. But there’s one more online account that lets you escape the limitations of the legacy banking system. 

Another way to get the benefits of online banking

A cash management account (CMA) isn’t a bank account. It takes the best aspects of online business checking and savings accounts and combines them into a single streamlined product. 

Brex Cash is a high-yield CMA that offers above-average interest rates and the banking services that startups expect, minus transaction fees and balance requirements.

The all-in-one account includes instant credit cards and flexible credit limits. And the user-friendly mobile app equips you with tools to monitor cash flow and track expenses. Send fee-free ACH and wire transfer payments and count on industry-leading fraud protection. 

Diving into digital 

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Online bank accounts let businesses shed many of the restrictions of the old banking model. Online-only institutions offer favorable interest rates and quick approval. But they aren’t yet a one-stop shop for your business banking needs. 

Conventional banks have evolved to offer online and mobile accounts that rival financial technology upstarts. However, they lag behind on fees and may not offer competitive interest rates. 

No matter which account you choose, take measures to ensure secure online business banking. Avoid public Wi-Fi networks and keep your business’ antivirus software up-to-date. When you're ready to apply, we've got a checklist of documents you'll need to apply for a business bank account online.

Brex Cash is offered by Brex Treasury LLC, a registered broker-dealer and member FINRA and SIPC. Brex Cash is a program that allows you to elect to automatically place your cash balances into certain money market mutual funds. Brex Treasury LLC is not a bank, your Brex Cash account is not a bank account, and it may not offer all of the services and protections that banks may offer. The cash you deposit into your Brex Cash account will not be stored at a bank. 

You could lose money by investing in a money market mutual fund. Although the fund seeks to preserve the value of your investment at $1 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The fund's sponsor has no legal obligation to provide financial support to the fund and you should not expect that the sponsor will provide financial support to the fund at any time. 

Brex Treasury LLC is not an investment adviser, and therefore investors should consider the investment objectives, risks, and charges and expenses carefully before investing. See program disclosures and the applicable fund prospectus for details and other information. Contact us for a copy of the fund prospectus and recent performance data. You should read the prospectus carefully before investing.

Brex Treasury LLC does not charge transaction or account fees. However, money market funds bear expenses and fees. Fees are subject to change. Yield is variable and may fluctuate as market conditions change.

Brex Treasury is a member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org. Securities in your account are protected up to $500,000. For details, please see www.sipc.org

This is not an offer, solicitation of an offer, or advice to buy or sell securities, or to open a brokerage account in any jurisdiction where Brex Treasury LLC is not registered.

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©2020 Brex Inc. “Brex” and the Brex logo are registered trademarks.The Brex Mastercard® Corporate Credit Card is issued by Emigrant Bank, Member FDIC. Terms and conditions apply. See the Brex Platform Agreement for details.Brex Inc. provides a corporate card. Brex Treasury LLC is an affiliated SEC-registered broker-dealer and member of FINRA and SIPC that provides Brex Cash, a program that allows customers to sweep uninvested cash balances into certain money market mutual funds or FDIC-insured program bank accounts. Investing in securities products involves risk, including possible loss of principal. Neither Brex Inc. nor any of its affiliates is a bank. Please see brex.com/cash for important legal disclosures.