A guide to business banking

Getting the right bank account for your new business is critical - but there are so many different offers and packages available that it can be bewildering.

Read our guide to discover whether you need an account, and what you should look for.

Do I Need To Open A Business Bank Account?

For sole traders, you might be able to use your personal bank account for business; check with your bank to see if this is allowed.

While legally your personal and business affairs are treated as one by HMRC, most banks would prefer two separate accounts, especially if a large number of transactions come through your company.

The benefits of retaining a personal bank account for business are that you will not have to pay any fees to set it up, or more likely, a monthly fee.

Some banks charge up to £25 per transaction if you're in credit in a business account, which can soon mount up very quickly.

So, if you can retain your personal account you could save on charges, although it clearly looks more professional to have a business account with a proper company address on correspondence.

A business account may allow you to apply for, and gain, finance more easily, as there is therefore self-evidently a separation between personal and business transactions.

If you've set up as a limited company or partnership, you are legally obliged to have a business bank account.

What Should I Look For In A Business Bank Account?

Firstly, shop around. The temptation would be to stay with your present personal bank, and let them set up an account for you.

However, that may not be the best course of action, as business banking packages vary enormously. The aspects you should be looking at, and comparing, include:

Fees for withdrawals

Some banks allow free day-to-day transactions for a set period of time, perhaps the first year or two.

These offers may also include free payment around cheques (paying in and issuing), and free set-up of standing orders and direct debits.

If you secure one of these accounts it might be worth logging exactly how much you would have spent on charges, for your own records, so that the total amount won't come as a nasty surprise when you actually do have to pay them.

Interest rate

If you're able to save money from the company then this is certainly an area where it doesn't pay to use a personal account, since interest rates are practically zero.

A business savings account will typically offer around 1% interest at worst. You'll need a deposit of at least £500. Look for rates on deposit accounts as these can be used to place tax liabilities for safekeeping.

Also, check the notice period - the number of days' notice you need to give before being able to withdraw; the more notice you need to give, the better the interest rate will typically be.

If you do have a savings account, as of January 2017 you should be entitled to £85,000 guaranteed savings protection as a smaller business, as covered by the Financial Services Compensation Scheme.