Pencil, calculator, and magnifying glass in toolbox on beige background

The 6 Types of Business Bank Accounts

If you’re starting a new business or trying to separate your personal and business expenses, you’ll need a good business bank account.

These are different from the checking and savings accounts you use for your personal banking. If you’ve never had one before, shopping for one can be tricky. Here’s what you need to know before deciding on one.

What are business bank accounts?

If you ask your banker to open a separate bank account for your side hustle, startup, or small business, the checking or savings account they open for you will probably be very similar to the ones you use for your personal banking.

The minimum balance requirements and transaction costs might be a bit higher, and you’ll need to provide the following when you sign up:

  • An Employer Identification Number (EIN) or Social Security number (SSN)
  • Any business licenses
  • Your business’s bylaws, operating agreement, or articles of incorporation, depending on what kind of business entity it is

But for the most part, the entry-level business checking and savings accounts you see your consumer bank advertising are very similar to regular checking and savings accounts.

As your company grows and its business needs change, however, the account you use for that business will have to change too.

You might need things like purchase protection, lines of credit, and business credit cards. To get those things, you might have to start paying your bank higher transaction fees, start carrying a higher minimum balance, and consider one of the following.

Business bank accounts at a glance

Banks offer many different types of accounts and services to businesses, and with the rise of online financial institutions and ecommerce, that variety has only increased. For simplicity’s sake, this guide is going to divide business bank accounts into three categories:

  1. Standard business savings and checking accounts
  2. Higher interest accounts like certificate of deposit and money market accounts
  3. Industry-specific accounts like merchant and trust accounts

That’s a lot of financial jargon in one place, so let’s stop for a moment to review what exactly all of these words mean:

Type of account Overview
Business Checking Similar to a personal checking account, but might come with higher monthly fees, balance requirements, and limitations.
Business Savings Similar to a personal savings account, but might come with higher minimum balance requirements, good for simplifying tax time and building credibility.
Money Market Higher-interest savings option that offers you some flexibility. Good for businesses looking for higher returns while maintaining access to their funds.
Certificate of Deposit Even higher interest option that locks your funds away for a set period of time in an FDIC-insured account. Good for businesses with excess capital.
Merchant Account Needed if you want to accept card or ecommerce payments.
Trust Account Some professionals (like lawyers) are required to hold unearned income (like retainers) in these.

Business checking account

While personal checking accounts are usually free or low-fee, business checking accounts are usually a bit more expensive, have higher balance requirements, and might come with other limitations.

On the other hand, shopping for one can be very similar to looking for a good personal checking account. You’ll want to look into:

  • the bank’s ATM network
  • any current promotions or perks for new small business owners
  • whether they offer services like overdraft protection
  • any monthly maintenance fees and transaction limits (like personal bank accounts, most small business bank accounts come with a limited number of free monthly transactions)

If you do any mobile banking, make sure the institution you’re banking with has a robust mobile app. (Ditto for online banking.) Make sure you’re also aware of any initial deposit or minimum account balance requirements (i.e. a minimum opening deposit).

Pros

Financial separation

If you’ve read the Bench blog before, you know that funneling all of your business’ earnings and expenses through a business checking account is the single best thing you can do to stay organized at tax time.

Further reading: Do I Need a Business Bank Account?

Legal separation

Separating your finances pays off doubly if you’re incorporated and your business enjoys limited liability. Mixing up your personal and business assets can endanger that liability while separating them protects your assets and makes it less likely that a court or creditor can go after them if something goes awry.

Build relationships and credibility

Financial separation and organization aren’t the only pros of opening a separate business checking account. Doing your banking under the business’ official name also builds credibility with your stakeholders and shows them that you’re serious about continuing that business in the long term. It also helps you start building a separate business credit score, which can come in handy if you ever start looking for creditors or investors.

Lines of credit

Some business checking accounts come with a line of credit you can tap if your business experiences a cash shortage. Learn all about lines of credit here.

Business credit cards

Some banks offer business credit cards to their account holders, which can help you build business credit and earn rewards.

Cons

You might not actually need one yet

If your business is still in its early stages, i.e., a side project that isn’t generating much revenue, you might be better off waiting for it to grow. Opening a business bank account takes time, and that time might be better spent thinking about the future of your company.

They’re more expensive than personal accounts

As long as you keep an organized set of books that keeps close track of your business’s finances, it might be cheaper to use a free checking account for your early-stage business instead of a paid business checking one.

Bottom Line

If your business has started making or spending money, you should get a business checking account. If not, you might want to hold off and stick to your personal bank account.

Learn more: The Best Business Checking Accounts

Business savings account

Just as you might open a personal savings account to piggybank away your extra cash, businesses will also open savings accounts to store and earn interest on any excess capital they might be hanging onto.

Pros

Higher interest rates

Generally speaking, savings accounts earn more interest than checking accounts. If your business has excess capital, opening a savings account could earn you a higher return.

It’s a good place to put your quarterly payments

If you set aside cash to cover your quarterly estimated tax payments to the IRS, a higher interest savings account could be a good place to put that money.

Peace of mind

Periodically adding to a savings account can be a great way to build a financial cushion for your business, removing a huge layer of stress from being a business owner and helping you prepare for unexpected events.

Most business savings accounts are also insured by the Federal Deposit Insurance Corporation (FDIC), which protects your cash deposits in case of bank failure. If you open one with a credit union, your deposits will probably be insured by the National Credit Union Administration (NCUA) instead.

Cons

More restrictions

Business savings accounts usually come with higher minimum balance requirements and tighter restrictions on when and how much you can withdraw from the account.

Bottom line

If you expect to have a lot of excess capital—because you need to set it aside for tax reasons, because you have a lot of cash on hand, or simply because you want a financial cushion for your business—opening a business savings account can make a lot of financial sense.

But if interest rates are low and you don’t expect to have a lot of spare cash on hand, you might be better off sticking to a standard business checking account.

Business money market account

Money market accounts (not to be confused with money market funds) are similar to savings accounts in that they offer higher interest rates in exchange for certain restrictions. These interest rates come from the money markets, i.e., the market for borrowers and lenders of short-term loans.

If you don’t think you’re getting enough bang for your buck parking your excess capital in a business savings account, you might consider opening a business money market account instead.

Pros

These offer higher interest rates than regular savings accounts and often include debit cards and check-writing privileges.

Cons

Money market accounts come with restrictions that make them less flexible than regular business savings or high-interest checking accounts.

Bottom line

If your bank offers you a high interest rate, a money market account might make more financial sense than a standard savings account. Just make sure the restrictions that come with it don’t lock away any necessary capital.

Business certificate of deposit account

Certificates of deposit, or CDs, usually offer an even higher interest rate than money market accounts while locking in your money for a set period of time (anywhere from a few months to a few years).

Pros

If you have a certain amount of excess capital that you know you won’t need for a while, locking it away in a CD can earn you more interest than you would receive in a savings or money market account.

Cons

Unlike savings or money market accounts, which usually offer some amount of flexibility around withdrawals, certificate of deposit accounts will often impose a penalty on an account holder if they withdraw their funds too soon.

Bottom line

If you can afford to lock your funds into an account for a fixed period of time, a certificate of deposit account might be just what you’re looking for. But if you need flexibility, you might want to consider a savings or money market account instead.

Learn more: CD vs Savings Account

Merchant account

Merchant accounts allow businesses to accept payment from a variety of sources, like debit and credit cards. You don’t keep your money in a merchant account: they’re more of a waystation in the payments chain than a destination.

If you want to run an ecommerce business or plan to process payments using some kind of physical card reader, you’ll need a merchant or merchant services account on top of your regular business banking account.

Pros

Flexibility

With the rise of fintech and ecommerce, the number of different ways to pay for goods and services has exploded. The need to meet your customers where they are has never been greater, and the more flexible your payment options, the more revenue opportunities your business opens itself up to.

Merchant accounts serve as a kind of bridge between these new forms of payment and a traditional bank account. If you plan to do business online or accept multiple forms of payment, a merchant account is a must.

Purchase protection

For merchant accounts, banks usually provide purchase protection to ensure that your customers’ information is secure.

Helpful resources:

Cons

Additional transaction fees

Under a merchant account agreement, most card and electronic transactions will cost you. How much depends on your provider and their fee structure: some charge you a percentage of the total transaction, others charge a flat fee, while others still will charge a mixture of the two. Some of these fees will go to your customer’s bank, some will go to your bank, and others might also go to Visa and Mastercard.

Bottom line

Unlike the other accounts on this list, merchant accounts are unavoidable if your business plans to accept cards and other forms of payment. When shopping for one, it pays to carefully review the terms of service so you’re crystal clear on the transaction fees you’ll be paying.

Trust accounts

Certain professionals are required to keep unearned income in something called a trust account, which is just an arms-length bank account managed by a third party. In the US, for example, it’s against the rules for a lawyer to earn interest on unearned retainer fees, so they have to keep those funds in a trust account called an “IOLTA”—short for “Interest on Lawyers’ Trust Accounts.”

Trust accounts can be tricky—they have very specific rules around what you can and can’t do with them, and the penalties for breaking these rules can be severe. If you suspect your business might need one, it might pay to consult a legal professional first to get clear on what exactly those rules are.

What's Bench?

We're an online bookkeeping service powered by real humans. Bench gives you a dedicated bookkeeper supported by a team of knowledgeable small business experts. We’re here to take the guesswork out of running your own business—for good. Your bookkeeping team imports bank statements, categorizes transactions, and prepares financial statements every month. Get started with a free month of bookkeeping.


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

Friends don’t let friends do their own bookkeeping. Share this article.

Want a free month of bookkeeping?

Sign up for a trial of Bench. We’ll do one month of your bookkeeping and prepare a set of financial statements for you to keep. No pressure, no credit card required.

Decorative patterns