What to consider when you choose a business savings account

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Eventually, every small business owner needs a way to store excess funds and earn interest on that money in the meantime. Whether you want to start an emergency fund or set aside money for tax payments, a business savings account is a powerful tool. 

The best small business savings accounts are easy to manage, offer excellent returns on your funds, and limit transaction fees to the bare minimum. Savings accounts are offered by traditional banks, credit unions, and other financial institutions. 

But, there’s more to selecting a savings account than looking for the highest annual percentage yield (APY). Account providers should also prioritize convenience and access, giving you multiple ways to tap into your business capital should you need it. 

In this post, we’ll go over when to consider opening a business savings account, features to look for, fees to anticipate, and the different types of savings accounts available to you.   

When should you open a business savings account? 

When it comes to business bank accounts, regulations are clear-cut. Depending on how your business is organized, you may be required to separate your business funds and personal funds. 

Many entrepreneurs open a business checking account to avoid violations and track ongoing expenses more easily. Opening a business savings account, on the other hand, is a slightly more strategic decision. It’s an appealing step to business owners ready to grow their passive income. If a company’s liquid assets are sitting in a non-interest-bearing account—or a low-APY account—it’s money left on the table.

There are, however, some important considerations. Deposit accounts often include restrictions, like withdrawal limits, minimum balance requirements, and other activity charges. 

If your business struggles to generate revenue and lacks funds to meet account requirements, the resulting fees could pile up in an already cash-tight situation. It’s best to open a savings account when you’re confident your business can cover operating costs and stay above any thresholds.

How to compare business savings accounts

The best savings accounts for businesses will deliver a high-yield APY while aligning with the owner’s financial goals. They can be a tool for long-term business investment or a periodic cushion for your company. 

For instance, an ecommerce business looking to lock in a fixed, reliable interest rate will need a different account than a startup that wants short-term returns and frequent transfers. 

In any case, there are a few benchmarks you can use to compare business savings accounts. Look for these features and guarantees in a deposit account at any financial institution. 

  • High interest rates: The top business savings account providers advertise competitive rates of 1-2% APY. On a $25,000 balance, that’s $250 to $500 back each year just for storing your funds. Keep in mind, however, that interest rates on savings accounts are directly tied to the federal funds rate. If the Federal Reserve raises rates, your account’s interest rate goes up, too. If federal rates decrease, so does the return on your savings.
  • Federal Deposit Insurance Corporation (FDIC) insured funds: With most business savings account options, there’s no risk of losing all your savings. The FDIC insures up to $250,000 in funds, and the National Credit Union Administration (NCUA) does the same for businesses banking with credit unions.
  • Transparent account terms: It should be clearly outlined when and how often you and any other account holders can interact with your funds. Is there a minimum account term length? Are ATM cards restricted to sole proprietors? Can you negotiate a better APY after a given time period? 
  • Clear fee structures: Similar to broader account rules, business owners must have visibility into when fees are assessed, how much is charged, and which charges are flexible. Is overdraft protection included? Are automatic transfers included in the monthly transfer limit? (We’ll dive into fees in the next section.) 
  • Rewards and perks: By contrast, many banks offer higher interest rates for large, recurring deposits or high account balances in order to attract businesses. Ask about waived fees and introductory offers that allow you to maximize your interest early and reduce fees overall. 
  • Online and mobile banking: Fast online banking from a desktop, laptop, or mobile device is essential for business founders on the move. Make sure the financial institution provides safe, fast, and secure digital access. 
  • Other: Your business may have other needs, like ATM cards, debit cards, or even deeper account access for multiple employees. Take note of this before you start looking in earnest. 

Customer reviews and local business associations can help you find recommendations on banking options for startups.

Monthly fees and other account limits to watch out for

We’ve written before about how checking account fees drain time and energy from busy founders. The same holds true for some business savings accounts. Many account providers have tiered fee structures, in which they waive charges and requirements if you maintain a higher balance. 

Some banks, credit unions, and financial companies are lenient if you have an established relationship with them. If you already have a checking account or credit card with the business, you may be automatically bumped to a higher tier. Below are common business savings account fees you should ask your prospective banking partners about. 

  • Monthly service fees: Also known as monthly maintenance fee, they’re often waived as long as you stay above daily balance requirements or set up automatic deposits. 
  • Low balance fees: It’s extremely common to see minimum daily balance fees, like a $10 charge if the account balance falls below $10,000. 
  • Minimum opening deposits: Some banks have minimums as low as $1, while others may require a $1,000 starting deposit to open an account.  
  • Monthly withdrawal limits: A Federal Reserve regulation limits account holders to only six transfers and withdrawals each calendar month or four-week statement cycle. Financial institutions will charge fees if you go over six transactions. Certain transactions, like ATM withdrawals, don’t count toward this limit. 
  • Deposit limit: It’s common for smaller banks and credit unions to limit the amount of cash deposits per statement cycle or charge an additional fee.
  • Dormancy fees: Inactive accounts with no transactions in over 12 months may be charged a fee.

This isn’t an exhaustive list of account charges, so request detailed information from specific bank representatives.

How to open a business savings account in 3 steps

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Here’s a brief overview of common business savings account options and the general process for opening an account.

1. Compare your account options

Each savings account or product has its own advantages and disadvantages. Let’s dive in.

Business savings account

Business savings accounts are bank accounts available at banks, credit unions, and other financial institutions. Accounts are federally insured and pay interest, typically at lower rates than other government-backed savings products, like certificates of deposit or money market accounts.

A savings account isn’t synonymous with a high-yield savings account—you’ll still have to search for options with a generous APY. Although you may find better returns with other savings products, funds in these accounts are generally more liquid and easier to access.

Standard banking services are available in-person or exclusively online. “Direct banks” or online banks typically guarantee higher APYs than traditional banks because they don’t carry the same overhead costs. However, you may not have access to in-person banking services or a wide ATM network. Online and phone support can cover the gaps. 

Business money market account (MMA)

A money market account (MMA) combines elements of standard business banking and checking accounts (and shouldn’t be confused with money market funds). 

Like a checking account, it may offer check writing, debit card usage, and ATM withdrawals, allowing you to make purchases directly from the account. Typically, there is a trade-off—businesses may receive better interest rates but steeper minimum deposits and higher daily balance requirements.

Certificate of deposit (CD)

A certificate of deposit is a savings product that’s characterized by commitment. With a CD, you deposit a certain amount of funds and agree not to withdraw them for a given time period. CD term lengths can range from a few months to several years. 

In return for locking away your savings, your business is guaranteed a favorable fixed interest rate over the life of the deposit. Less fortunately, if interest rates improve after the funds are deposited, the original, lower rate stays in place.

Early withdrawal fees are hefty, so it’s not a good choice if you may need to cash out early. However, if you’re able to set aside funds for the long term, it’s a stable option. And, you may be able to negotiate a more competitive interest rate when your CD is near maturity, meaning it’s near the end of the term length.  

Cash management account (CMA)

If you’re wary of the traditional banking system, consider a modern cash management account like Brex Cash. CMAs aren’t bank accounts and may come with different features and guarantees, but they do offer flexible, all-in-one financial management.

Brex Cash offers industry-leading APYs with no minimum balance fees, overdraft fees, ACH or wire transfer fees. You can send payments, save funds, pay bills, and more from the mobile app or online. 

Most importantly, Brex has no personal collateral requirement. That means your credit score and personal assets aren’t at risk just because you opened a savings account. Learn more about the benefits of CMAs for startups and other businesses. 

2. Prepare your documentation

It’s a good idea to have the following documents ready to open a business savings account, or to simply start the conversation. 

  • Organizing documents, such as your articles of incorporation, operating agreement, and letter of determination 
  • Business identification, like your “Doing Business As” documents and Employer Identification Number (EIN)
  • Personal identification, like your Social Security number and driver’s license
  • Business licenses and permits, such as tax permits and professional licenses

3. Apply online or in person

After you’ve identified which business savings accounts or products you’re interested in, contact representatives for more detailed information. It may be helpful to ask whether they review your business credit score when making their application decision. 

Confirm interest rates, account requirements, and other aspects. Once you’ve made a choice, most financial institutions allow you to apply online or in person. 

Have your documents prepared and consider having them reviewed by your accountant or bookkeeper before submitting them. Have your funds on hand to deposit once your account is approved so you can start off on the right foot. 

Maximizing your business capital 

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Finding the right account can feel like a research-intensive process, but it’s worth the effort. Whether you’re looking to bank savings for your rainy day fund or separate your retained earnings, you have a variety of options. 

Look for a low-fee, high-yield business savings account that offers stellar customer service, and it will be hard to go wrong.

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