Small business bank account vs. cash management account

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Most business owners realize early on that they need a distinct business account to manage company finances, track expenses, optimize accounts payable, and ideally, earn interest. But your options don’t end with a traditional small business bank account. A cash management account is a new financial product known for high returns on cash, low or no transaction fees, and convenient digital tools. 

Both accounts will help you separate your business and personal finances, which is required for most business types. Having clear business records also makes it easier to get small business tax deductions — and avoid IRS fines. Each business account has unique advantages and disadvantages. Let’s compare these two options.

What is a small business bank account?

When you hear the term “business bank account” you may immediately think of a checking account. Technically, there are two other kinds of business bank accounts: 

  • A savings account, which allows you to accrue interest on extra funds
  • a merchant services account, which allows you to accept credit card payments from customers 

We’ll focus on checking accounts since they’re the most common type of bank account for small business owners. Opening a checking account is the first step toward organizing your everyday business spending. In a nutshell, it enables you to send and receive payments in a timely manner. This is done through the use of a business debit card or credit card, checks, ACH transactions, wire transfers, and ATM withdrawals. 

It’s challenging to describe the typical bank account because the experience can vary so widely by financial institution. Today, traditional big banks, credit unions, and online-only banks all offer small business bank accounts. 

You’re more likely to find other convenient services — like cash deposits and currency exchange — with brick-and-mortar institutions. Online-only banks, on the other hand, have higher approval rates for young businesses, fewer fees, and more generous interest rates. That said, you can boil down a small business checking account to a few key pros and cons. 

Small business bank account pros and cons

Money management is essential for a healthy new business, but that doesn’t mean the average account will meet your banking needs. Review the major advantages and disadvantages below:

Pro: Convenient daily business banking

Conventional banks and credit unions have thousands of locations to give entrepreneurs easy access to banking services during the business day. And for cash-based businesses, a large, free ATM network is crucial to operations. Cash deposits are simple, although there are usually monthly limits or fees. With the rise of online banking, banks are also creating — or improving — their own mobile apps to let you tap into your account anywhere your business takes you.

Pro: Established financial relationship

It’s notoriously difficult for new business owners to qualify for small business loans with banks of all sizes. Having a bank account with them could be the leverage you need. Most financial institutions are more likely to extend credit to current customers than to new applicants. In addition, you could improve your chances of approval for their merchant services. And many banks offer small perks upon account opening, like a $100 bonus. 

Pro: Federally protected funds

Most checking accounts include something called Federal Deposit Insurance Corporation (FDIC) insurance. This policy protects the first $250,000 in each of your cash deposit accounts. It applies even if you have a joint account with your co-founder or business partner. 

Con: Rampant fees and requirements

Founders of startups and small businesses know that the current banking environment doesn’t favor them. Entrepreneurs struggle to qualify for accounts, whether it’s due to their non-standard income stream or thin business credit score. 

Banks offer little flexibility and a multitude of fees. Most companies levy monthly maintenance fees and transactions fees that send owners on the hunt for free business checking accounts. Or, they have minimum balance requirements that are out of reach for businesses just starting up. 

Con: Low interest rates 

Business bank accounts generally have better annual percentage yields (APYs) than personal checking accounts. However, most small business bank accounts ring in at just 0.1% APY. That number can go even lower when the federal funds rate decreases, like it has due to the COVID-19 economic fallout.  

Con: Personal financial risk

You may have incorporated your company to gain personal liability protection. But most business credit cards, and some debit cards, put your own assets in jeopardy. You could be held personally responsible for payments if your business encounters hardships.

Now that we’ve examined small business bank accounts, let’s see how cash management accounts stack up. 

What is a cash management account?

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A cash management account (CMA) combines the interest rates of a business savings account with the essential features of a checking account. A CMA isn’t a bank account; it’s an all-in-one online tool to automate your business finances and monitor cash flow. 

CMAs are generally offered by non-bank financial institutions that are online only. With fewer operating costs, CMA providers can pass the savings to account holders in the form of fee-free transactions and better APYs. And with fewer accounts to manage, you can spend less time on banking and more time on activities that grow your business. 

Brex Cash is a CMA built for entrepreneurs. We’ve removed the outdated barriers to approval so more business owners can experience a fee-free financial system with ample credit. Below, we review the pros and cons of the average CMA for you.

Cash management account pros and cons

These modern cash accounts create a central hub where small business owners can effortlessly manage their capital. What the right financial account looks like for your company depends on your business needs. Dig into the pros and cons of cash management accounts:

Pro: Easy access to your funds

With a CMA, you get access to standard banking services, like direct deposit, checks, and wire transfers. But online-only account providers are more likely to be at the technological forefront. In addition to typical services, CMAs include app integrations and tools that simplify your business. 

For instance, Brex Cash makes mobile banking — including receipt uploads and mobile check deposit — completely painless with a user-friendly app. It’s easy to connect your accounting and payroll system, and set up automatic bill pay. 

Pro: Industry-leading APYs

CMAs double as a high-yield savings account for business owners. Your money is automatically put to work to maximize earnings and profitability while you run your business. And unlike certificates of deposit, you can tap into this money when or if you need it. There’s no minimum balance to start earning interest with Brex Cash.

Pro: No fees, minimums, or personal risk

Most CMAs guarantee zero monthly service fees and free transactions, freeing up your budget for the costs that matter. Generally, there are zero ACH fees and wire transfer fees, which can range from 1% to 4%. 

Furthermore, Brex Cash has no personal liability guarantee and no minimum balance requirement. As a result, CMAs essentially function as a free checking account — outside of the traditional banking system. You can easily issue cards to employees, allowing them to make debit card purchases without worrying about overspending. And you aren’t stuck waiting to discover unexpected charges at the end of each statement cycle.

Con: Limited cash deposits

If you don’t accept credit card payments yet, CMAs may not be a good option for your business. Most CMA providers don’t have an accessible ATM network for cash deposits. There may, however, be some workable options if you only need to make periodic deposits.

Choosing the right business account

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As an entrepreneur, you’re constantly making choices to give your business the greatest chance of survival. Managing money is key to that goal. Separating your personal account from your business account is a good starting point. Opening a small business bank account or cash management account is the next step. 

Traditional banks offer robust accounts, but tack on monthly fees and minimum daily balance requirements. CMAs are online-only, but offer excellent interest rates and simplified money management. Now that you’ve compared the pros and cons, you can start evaluating companies and getting organized.

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