What is a business savings account and how does it work?

Business savings accounts allow companies to deposit cash reserves that aren’t needed for their day-to-day operational expenses, allowing them to earn interest on money that would otherwise be sitting idle. Competitive business savings rates allow companies to build up several months’ worth of operating expenses in these accounts, which can be drawn on to pay for notable bills or to cover unexpected expenses.

What is a business savings account?

Unlike a business current account, which is primarily used to hold money for daily transactions, a business savings account is a place where a business can earn interest on its cash reserves. Essentially, idle excess funds a business doesn’t need to draw on for its operations can be deposited into these savings accounts to generate additional income through interest earned.

Why would a business want a savings account?

Creating a business savings account gives a business a separate pot in which to deposit its cash reserves. An advantage of this, beyond simply earning interest on these savings, is that a business can gradually build up a substantial amount which could be drawn on in case of emergency expenses or put towards future bills like annual corporation taxes or VAT.

How much access might the business need?

Easy access business savings accounts can offer greater flexibility when it comes to withdrawing funds. Many businesses may open these savings accounts to build up their cash reserves as a safety net in the event of unforeseen expenses or to save towards upcoming company bills. So, having the ability to access these funds without any prior notice can be a real advantage.

Notice accounts generally offer more attractive interest rates than easy access, however they require specific requests to withdraw funds and a subsequent waiting period (usually 30-90 days) before money is then withdrawn. Fixed-rate accounts generally offer competitive interest rates, but with restricted access for the fixed term.

What eligibility and account rules should be checked?

Business savings accounts have several stages of eligibility to review. Providers will check that a business and its directors are UK tax residents. They will also check factors such as the number of employees, accounting information and annual turnover. Some providers also set a minimum or even maximum annual turnover limit to access their business accounts. A business must also be solvent to apply for a savings account.

A business savings review checklist

Now that we’ve reviewed what a business savings account is and how it works, let’s summarise:

• Business savings accounts allow businesses to set aside and earn interest on cash reserves that don’t play a part in their daily operational expenses.
• Many businesses will use these accounts as places to build up additional operating expenses, essentially as a ‘safety net’ of funds to pay towards any emergency expenses or upcoming bills.
• These accounts are usually used as easy access to allow for flexible withdrawals, however, notice and fixed-term accounts with more competitive interest rates are also available.
• Qualifying for a business savings account requires several eligibility checks, notably that business directors are primarily UK tax residents and the company falls within a certain minimum and maximum annual turnover band.

Frequently asked questions

How are business accounts different from personal accounts?

Business accounts are held by a business entity, rather than any specific person in a company. These accounts also help simplify bookkeeping and keep business and personal finances separate.

Is there any advantage to opening a business savings account?

A business savings account allows a business to earn interest on money that might otherwise be sitting idle. In this way, it offers a clear advantage in making the most of surplus cash.

Do business savings accounts have limited access?

Business savings accounts come in the same forms as standard personal savings accounts: easy access, notice and fixed term. These options allow businesses to choose the account type that best suits their financial needs.

Is it difficult to qualify for a business savings account?

Each provider will have their own eligibility criteria for a business savings account, so checking these requirements can help you understand whether you qualify.

Next steps

If you’re considering your options in trying to choose a business savings account, these Kent Reliance pages may help.

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