Saving for a rainy day is a phrase we are accustomed to hearing when it comes to our own personal finances, but not one we would think about when it comes to business.
But business savings accounts help many companies and sole traders weather difficult financial times. It’s clear that there are benefits to having a business savings account, but which is the best company savings accounts to opt for?
|Table of contents →|
|Why might a business want a savings account?|
|What are the different options for business savings accounts?|
|Current business saving accounts|
|Business savings accounts FAQ|
Why might a business want a savings account?
There are many reasons why it makes sense for a business to have a pot of savings:
- Buffer income volatility – whether you are a limited company or a sole trader, every business is subject to ever-changing trading conditions. The most recent issue many businesses have faced is the coronavirus pandemic. Even with Government help, many businesses found trading conditions so difficult that they become insolvent. Whilst a savings pot may not stave off such large trading threats, it will and can go some way in helping a business survive difficult conditions. It also means that if sales are slow and income is affected, a business sales account can provide a welcome buffer.
- Buffer unexpected costs – overheads do not remain the same, and if they rise unexpectedly, a savings pot could help buffer these unexpected costs.
- Ring fence money for tax and VAT liabilities – ringfencing money to pay upcoming tax and VAT bills is easier with a savings account. By using accounting software, you can automatically calculate the size of both or either of these bills and put this money aside. It also means that as you save this money, you accrue interest, a welcome added bonus.
What are the different options for business savings accounts?
There are different business savings accounts that a startup can easily use to give their business a stable financial foundation.
Like all savings pots, there are different issues that you need to consider. By doing so, you’ll find the business savings vehicles that your business needs:
- Accessing your money – some business savings accounts are built for long term returns which means getting access to your money is not instant. Other saving pots do have instant access, but the pay off is a lower return.
- Interest rates – any money that your business puts aside needs to work hard, and that comes in the way of interest. Longer terms savings vehicles have a higher interest rate as do some business savings accounts that are deemed ‘riskier’. Other business savings accounts that have instant access will have a lower interest rate.
|Business savings account type||Interest rate type||Access period|
|Fixed-rate term||Fixed for a set term||No access during this period. If you do access the savings fund, you may suffer a penalty.|
|Notice accounts||Variable – can be changed at any time||Starts with seven days’ notice|
|Easy access||Variable can be changed at any time||No notice required, instant access but may be limited on the number of withdrawals.|
Understanding which is the best instant access, fixed interest rate or higher interest rates business savings account for your business is essential.
Current business saving accounts
The interest rates and products on offer can change without notice. Always check the current business savings rates and products on offer from each bank before you commit
|Bank||Minimum deposit||Minimum term/access||Good to know…|
|Aldermore Bank||£1,000||Instant access available||A leader in business saving accounts and products, Aldermore offers a range of savings accounts specifically aimed at business.|
Easy access account – an instant access account with an AER 0.50%. Interest is calculated daily and paid monthly or annually.
Fixed-rate account – earn interest on your money by placing it into this savings pot for a fixed period. The interest rate is higher, at 0.75% AER. Options include 6 or 12 months fixed options.
|NatWest||£0||Easy access, notice access and fixed-term products available||A high street bank, NatWest has a range of products to encourage businesses to save in accessible amounts.|
They have three options available – easy access, notice access and fixed-term savings accounts.
Interest rates vary between 0.2% and 0.85%, and even higher, but depends on the account you choose as well as how long you lock your money away for.
Just like current accounts with the bank, you can manage transfers and payments online and in the NatWest app.
|Metro Bank||£5,000||Instant access, fixed term and notice business savings account||Metro Bank is the newest bank in the UK – in fact, it was the first new bank to come onto the British banking scene for over 100 years. Since it opened its doors in 2010, it has made a positive impression with personal and business account customers.|
Their savings accounts are available to business current account holders. You’ll need £5k to open the savings account and expect a return of between 0.35% – 1.6% AER, depending on how much you save and how long for.
|HSBC||Starts from £0||Business Money Manager and Business Money Market Account||HSBC business savings come in a variety of packages, some which suit smaller business as well as specialist products for community organisations and charities.|
The Business Money Manager is instant access with a lower interest rate accordingly which is calculated daily.
The Business Money Market Account is for saving pots of over £5k. Interest rates vary depending on the account type and how long it is saved for.
|Lloyds||£1||Offers three products: easy access, notice, and fixed-term savings account.||Lloyds is one of the Big Four high street banks and a trusted name for many business customers.|
Offering three savings vehicles for business – fixed term, notice accounts and easy access – business customers can save for up to 3 years. For the notice account, you’ll need to give 32 days’ notice to access your money.
Interest rates vary, and like other banks, it is calculated daily and paid monthly.
|Virgin Money||£1||Two products available – one fixed term, the other flexible.||Virgin Money has, like some challenger banks, created flexible business banking products for businesses.|
There are two products available, and on the plus side, there are no fees or charges. As a Virgin customer, you’ll also have access to free WiFi at Virgin’s business lounges, as well as free tea and coffee, newspapers and, if you’re in-between meetings, a place to work.
The Business Access Savings Account will earn your business 1.01% AER with instant access to your savings. You can open it with £1 and deposit up to £2 million.
The 1-Year Business Fixed Rate Savings will earn 1.75% AER (this rate may change in the coming months). Again, you can open with £1 and save up to £2 million.
|State Bank of India (UK)||£10k||Instant access and fixed-term savings products available||If you have a lump sum to put into a business savings account, this could be the bank that offers the interest rate you are looking for.|
The SBI UK business savings account offers 1% AER on balances above £10k. If the balance remains above £10k, there is no annual fee.
The fixed deposit account offers a saving period of between 1 and 5 years with an interest rate of between 1.40% and 1.50% on balances between £10k and £250k.
|Cambridge Building Society||£1,000||Opportunity to withdraw cash up to twice a month||Open a business deposit account with £1,000 (you can deposit up to a quarter of a million pound) and earn 0.25% AER. You cannot open an account online, however, so you’ll need to call into a branch. A great savings vehicle for a small deposit that you can leave to accrue interest on. Great for ringfencing tax or VAT liability payments too.|
|Masthaven||£5,000||Fixed-term, no withdrawals allowed||IF you have a sum of cash you can afford to lock away in the long term, take a look at Masthaven.|
Available to UK sole traders and limited companies, you can invest from £5,000 to half a million. The longer you save, the higher the return.
A business can open up to four accounts, spreading £1 million between them.
The fixed-term ranges from 6 months to 5 years; these high-interest business savings account will earn you between 1.80% and 2.10% AER – calculated daily and paid annually.
BUT you cannot withdraw your cash during the fixed term, so you’ll need to doubly sure you won’t need to access it during the term you sign up for.
A business savings account can really help a business to build a stable financial base. It allows surplus income to be saved and earn you interest at the same time. But like all business accounts, you need to make sure you choose the right product for your business, including how quickly you can access the money.
Business savings accounts FAQ
Yes, in fact, from a financial planning point of view, a business savings account is a great way of ringfencing money as well as earning extra income too. There is a huge range of savings vehicles for business from high-interest business savings accounts to fixed-term products that can yield a high-interest rate, but limits access to your money.
A business that has a savings account affords itself extra protection against a range of financial issues such as managing dips in income, as well as putting aside sums of cash to meet tax and VAT liabilities. Company savings accounts also allow a business to put aside surplus cash and earn money through interest payments. It gives an extra sense of security that should there be a rainy day for the business to endure, that there is a pot of cash to draw on.
There is no doubt that a business savings account is part of prudent financial planning for any business, no matter their shape or size.
Savings operate in a similar way for businesses as they do for personal customers. The amount a business saves depends on a variety of factors:
• Leave a buffer in the current account – a business should maintain an operating buffer in their current account so that overheads and bills are met from month to month. This is especially important if you place savings into a fixed term, no access savings vehicle.
• Meet current debt obligations – it is important that a business not only keep a buffer in their current account but are able to easily meet their overheads and bill payments.
But, as a small business, you can put away the money that you need to meet tax or VAT liabilities.
If you use a piece of accounting software, such as Xero or QuickBooks, it can automatically calculate how much your tax and/or VAT liability will be. This means you can move this amount to a savings account. You’ll just need to make sure that you can access the money when you need to in order to pay your liability.
In other words, a business shouldn’t place itself into financial difficulties in order to save but can be used to save the amount you will need to pay in tax or VAT every quarter or annually.
A high-interest business savings account will yield a higher return, and this can be maximised in a number of ways:
• The amount you save
• The length of time you save it for
• Whether it is an instant access or notice account
The best business deposit accounts are ones that are fixed term. But what this means is that the money you place into the savings account is locked away for a period of time. This could be for 6 months or as long as 5 years.
Banks change interest rates too, and so there may be times when interest rates significantly increase, just as there are times when interest rates can be low.