Key takeaways
- Business checking accounts offer tools like payroll processing, merchant services, fraud prevention and multi-user access.
- Keeping your business and personal finances separate can simplify bookkeeping, tax reporting and financial management while safeguarding your personal assets.
- Opening a business account may involve providing additional documentation, such as a Certificate of Good Standing, an assumed name certificate, a business license or beneficial ownership details if the business has multiple owners.
Paper checks may be nearly obsolete, but checking accounts are still vital for individuals and businesses alike. But if you’re starting a business, how do you know when you need more than just a personal account?
While all checking accounts provide quick access to funds, their other features vary depending on whether the account is offered to individuals or businesses. Here’s what you should know to determine when you need a dedicated checking account for your business.
Key features of personal checking accounts
Personal checking accounts are designed to meet everyday financial needs with straightforward features and easy access to money.
A personal checking account provides essential tools for everyday money management such as check-writing, ATM access, debit card purchases and direct deposit for your paychecks. These accounts may also have features like automatic bill-paying, easy transfers to other accounts and the ability to send and receive funds electronically. They also give you peace of mind by reducing the need to carry cash and ensuring your funds are protected through Federal Deposit Insurance Corporation (FDIC) insurance.
Key features of business checking accounts
Business checking accounts offer the same features as personal accounts, but they are designed to help you run and grow your business.
For example, some banks offer merchant services that let you accept credit card payments. They may also provide access to a line of credit to support businesses with financial flexibility.
Business accounts also tend to offer more detailed reporting and integrations with accounting software to help you keep your bookkeeping up to date. You can provide multiple usernames and debit cards for your key employees, so you can track who is accessing your account.
Banks are constantly creating unique features to attract business customers. For example, some banks will let you set up a reserve for customer deposits or divide your funds under separate account numbers to track business activities. Others offer invoicing capabilities, point-of-sale devices to process checks or even the capacity to create simple online shops.
Business account costs
Like personal accounts, some business accounts are free, while others charge monthly service fees. Some accounts also pay interest on your deposits. Most financial institutions offer several types of accounts, with different interest rates and fees depending on your average daily balance.
Keep in mind that, while banks make some money from fees and charges, their business model depends on having enough deposits on hand to make profitable loans. The more money you keep in your account, the more attractive you are as a customer. That’s why banks offer more attractive terms to businesses that maintain larger balances.
Businesses often incur fees if they have a high volume of transactions per month or handle large amounts of cash. These fees generally depend on the amount deposited and the number of deposits per week.
Why open a separate business account?
Besides the special features available, having a separate account for your business offers several vital benefits. It helps you track your profitability, simplifies tax reporting and could even help you qualify for business loans.
Plus, if you keep your business and personal funds intermingled, a court could rule that your business is not really separate from you — even if you’ve set up a limited liability company (LLC) or corporation. That leaves your personal assets vulnerable if your business gets sued or goes bankrupt.
For some owners, opening a business account also offers a psychological lift. Watching the balance grow may help you see your business as a separate entity and operate it more professionally.
Who needs a business checking account?
A business checking account is usually a good idea for anyone running a business, regardless of size.
And even that small side hustle you’re doing could be considered a business — and worth separating from your personal finances. Regardless of your business structure, you’re legally obligated to track your income and expenses so you can calculate the taxes you owe — which might include income tax, self-employment taxes, sales tax and other obligations. Opening a business account allows you to track your business finances much more easily.
Whether you’re a small business owner looking to separate personal and business finances, a freelancer tracking payments and expenses or an entrepreneur starting fresh, opening a business checking account is a key first step toward establishing your business finances. It simplifies tax reporting and demonstrates professionalism, making it a must-have for anyone serious about running a business.
How to open a business checking account
If you are a sole proprietor running a business under your name (such as Joe Schmoe Plumbing), you can usually open an account with your Social Security number (SSN) and legal ID.
If you’re a sole proprietorship or partnership operating under a business title that doesn’t match your name, you need an assumed name certificate. You can usually get this at your county clerk’s office by paying a small fee and publishing a legal announcement. You can still operate under your SSN.
If you’ve formed an LLC or corporation, you’ll typically need a federal employer identification number (EIN) to open a business account. Depending on the bank, you may also need other business information, such as:
- A Certificate of Good Standing
- Business license
- Beneficial owner information (if you own the business with someone else)
Once you’ve collected all the necessary documents, you can open a business checking account in the same way you would open a personal account — either by visiting the bank’s website or a local branch.
What to look for in a business checking account
When selecting a business checking account, look out for those that offer specialized features designed to meet the unique needs of your business, such as:
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Account access for trusted users: Permissions, or entitlements, allow designated individuals — such as office managers or accountants — to access the account with specific roles and responsibilities.
- Fraud prevention tools: Many banks offer services like Positive Pay, which helps prevent check fraud by verifying checks against an approved list. Any discrepancies are flagged for further review.
- Debit card for non-account signers: Providing key employees with their own debit cards can help you better manage expenses. Most banks allow you to set limits on any employee-assigned cards.
- Advanced payment capabilities: Business accounts often support higher transaction volumes and more complex money movement options, such as ACH payments, wire transfers and batch processing.
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Low minimum deposit: To open the account, and a monthly balance requirement that suits your cash flow.
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Monthly fees and transaction fees: Look for a fee structure that fits how your business operates.
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Cash bonuses: Many banks offer cash bonus for opening a new business account, especially for new customers.
- FDIC insurance: Always be sure the bank is FDIC insured, which protects your business’s deposits up to a $250,000 limit for all your accounts at the same institutions.
The bottom line
Small business owners usually need a business checking account to keep their personal and business funds separate. This separation makes it easier to track profitability, file taxes and access business funding from your bank.
Business accounts also lend professionalism to your business and give you access to banking tools like payment processing and lines of credit. Most importantly, a separate business account could protect your personal assets if your business ever faces a lawsuit or bankruptcy.
If you’re running a business, it’s a good idea to leverage both a personal and a business checking account to keep your financial worlds distinct.
Frequently asked questions
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