Top-rated Savings Accounts for Businesses: Find the Best Rates and Security

Are you a business owner looking to grow your capital and maximise returns on your surplus cash? If so, opening a savings account for businesses might be the perfect solution. This comprehensive guide will walk you through the ins and outs of savings accounts for businesses, including the types available, eligibility criteria, and tips for choosing the right account for your needs. Let’s dive in!

Key Takeaways

• Business savings accounts provide companies with higher interest rates than current accounts.
• Eligibility criteria, features and taxation must be considered when choosing the best account for a business’s needs.
• Business owners should separate personal & business finances to gain interest on extra cash, track expenses & make better financial decisions.

Understanding Business Savings Accounts

Companies have the potential to earn a return on their cash reserves through business savings accounts. These accounts enable businesses to accumulate funds, facilitating growth and providing a financial buffer during times of financial hardship. One of the primary advantages of a business savings account is the higher interest rate it offers, allowing businesses to generate additional income from their excess funds.

Differentiating between business current accounts and business savings accounts is vital. While business current accounts typically offer low or no interest for credit balances, business savings accounts often provide higher rates of interest, potentially bringing more returns to your business than leaving these funds in your business current account.

Types of Business Savings Accounts

Three main types of business savings accounts are available for selection. These are:

1. Fixed-rate accounts: offer a predetermined interest rate for a set period of time, providing a competitive business savings account rate. However, accessing funds early in fixed-rate accounts can incur a cost.
2. Easy access accounts: allow you to withdraw funds whenever you need them without any penalties or restrictions.
3. Notice accounts: require you to give a certain amount of notice before you can withdraw funds. The notice period can vary depending on the account.

Each type has distinct features and terms which should be carefully considered.

Easy access business savings accounts offer:

• Flexibility in withdrawing cash
• Typically have a minimum deposit requirement of £500
• Provide convenient access to funds with no fees
• Can be an ideal choice for businesses that require frequent access to their savings, making it similar to an instant access account

Lastly, notice business savings accounts require account holders to provide notification prior to their decision to withdraw money, with notice periods ranging from one week to six months. This type of account may be suitable for businesses that can plan their withdrawals in advance and are willing to wait for access to their funds in exchange for potentially higher interest rates.

Eligibility Criteria for Business Savings Accounts

Certain restrictions such as the type of business or sector may apply when opening a business savings account. To be eligible for a business savings account, businesses must possess a current account with a UK bank or building society authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. It is not a legal requirement for businesses to open a business savings account, but it is a smart financial decision for many companies.

Business savings accounts can be opened and managed through various means, such as:

• Online
• Postal applications
• Telephone
• Written communication

Some providers also offer branch-based relationships for account management.

Comparing Business Savings Account Features

Factors to consider when evaluating business savings accounts include:

• The interest rate offered
• Accessibility of funds
• Minimum and maximum deposit requirements
• Ease of access and account management

Business savings accounts usually have annual interest rates ranging from 0.10% to 6.11%. AER stands for Annual Equivalent Rate, which is a crucial factor to consider when you rate business savings.

Accessibility of funds can vary between different business savings accounts. Some accounts offer unrestricted access to deposited and withdrawn funds, providing immediate access to your money and flexibility for your business. On the other hand, other accounts may have restrictions on withdrawals, requiring prior notification or imposing penalties for early withdrawals.

Comparing the features of different accounts and assessing how they align with your business’s cash flow requirements and financial strategy is essential in choosing the best business savings account for your needs.

Top Business Savings Accounts with High Interest Rates

Listed below are top business savings accounts with high interest rates alongside their features:

1. Allica Bank’s 180-Day Notice Savings Account Issue 1 offers a 3.2% interest rate and requires a minimum deposit of £10,000, with no withdrawals or additions allowed during the term.
2. Shawbrook Bank’s Easy Access Business Account Issue 10 has no fixed term and no notice period, with the account being manageable online or by post.
3. The Cumberland Building Society’s eSavings Issue 4 account requires a minimum deposit of £1,000 and is a suitable choice due to its competitive interest rate, flexible terms, and modest minimum deposit.

Given that these accounts cater to various business needs and objectives, evaluating the following factors becomes crucial:

• Interest rate
• Minimum deposit
• Maximum deposit limit
• Features of each account

Consider these factors before making a decision.

FSCS Protection for Business Savings Accounts

The Financial Services Compensation Scheme (FSCS) is the UK’s deposit guarantee scheme that provides protection for eligible deposits up to a maximum of £85,000. The FSCS offers a coverage limit of £85,000 per business per bank or building society, ensuring full protection when distributing investments across several financial institutions.

All the business savings accounts listed in this guide (except Wise) are business savings accounts covered by the FSCS. This protection enables businesses, as well as those with a personal savings account, to make informed decisions with confidence when selecting a savings account.

Taxation on Business Savings Accounts

Interest in business savings accounts is typically presented as gross. This means the interest rate displayed is before the deduction of tax. It is essential to be aware that any interest gained above the personal income tax threshold might be taxable at your personal rate of income tax, depending on other sources of income. Therefore, it’s prudent to factor in this kind of monetary gain when estimating your overall tax obligation..

Sole traders must remit tax on any interest accrued on the savings account and report it as part of their annual tax return. The annual self-assessment tax return for sole traders must be submitted by 31 January following the tax-year end.

Separating Personal and Business Finances

A crucial aspect of small business finance is maintaining a clear distinction between your business and personal finances, especially for sole traders who need to differentiate between the company’s money and their own funds. If the business is incorporated, it is obligatory to open separate business accounts.

A business savings account can be beneficial in the following ways:

• Earning interest on extra cash
• Maintaining a distinction between personal and business finances
• Easier management of cash flow
• Tracking expenses
• Maintaining accurate financial records
• Better financial decision-making and growth

Tips for Choosing the Right Business Savings Account

Consider the following factors to choose the right business savings account:

1. Amount of money to be saved: Assess your business’s financial situation and determine how much money you can afford to deposit into a savings account.
2. Frequency of access to funds: Evaluate how often your business may need to access the savings account and choose an account that meets those requirements.
3. Interest rates: Compare the interest rates offered by various savings accounts and select the one that provides the highest return on investment.

By taking these factors into account, you can identify the best business savings account for your company’s needs and financial goals.

Managing Your Business Savings Account

Effective management of your business savings account is crucial for financial success. Here are some tips to help you:

1. Maintain a cash flow buffer in your account to address surprise expenses or low-revenue periods.
2. Set aside funds to plan and budget for future expenses, such as equipment upgrades.
3. Save money in the account for business taxes.

By following these strategies, you can ensure that your business savings account is well-managed and supports your financial goals.

Businesses can manage their savings accounts through online portals, offering features such as viewing balances, transactions, statements, setting up low balance alerts, and utilizing online and automatic bill pay. For businesses that prefer offline account management, options include submitting applications via postal service or visiting a physical branch of a bank.

Regularly review and manage your savings account to ensure it aligns with your business goals and financial strategy. Monitor interest rates regularly to capitalize on higher rates and make informed decisions regarding your savings.

Summary

In conclusion, opening a business savings account offers numerous benefits, such as earning interest on surplus cash, providing a financial buffer, and facilitating business growth. By understanding the different types of business savings accounts, eligibility criteria, and factors to consider when choosing the right account, businesses can make informed decisions that align with their financial goals. Regularly managing and reviewing the savings account ensures that it remains aligned with your business’s needs and objectives. Take control of your business finances today and watch your business thrive!

Frequently Asked Questions

Can you open a savings account for business?

Yes, businesses can open a savings account and are legally required to do so when they have a limited company. Savings accounts for businesses will usually work in the same way as personal accounts, allowing cash deposits with competitive interest rates.

What is the difference between a business current account and a business savings account?

A business current account offers no or low interest for credit balances, while a business savings account offers higher interest rates, allowing businesses to generate income from their excess funds.

What is the Financial Services Compensation Scheme (FSCS)?

The Financial Services Compensation Scheme (FSCS) is the UK's deposit guarantee scheme that protects eligible deposits up to a maximum of £85,000.

How is interest from a business savings account taxed for sole traders?

Sole traders must declare the interest accrued on their business savings account as taxable income in their annual tax return.

How often should a business monitor the interest rates of their savings account?

Businesses should monitor the interest rates of their savings account on a daily basis to ensure they are getting the best deal possible.