A bank account is a must-have for any small business. Before opening an account with a bank or credit union, small business owners need to know a lot about the different kinds of business accounts they can get. According to guidelines from the U.S. Small Business Administration, you should open a business bank account as soon as you start getting payments. Any legal entity that does business as a DBA, LLC, or corporation must have a separate business bank account. types of business account will be covered in-depth in this article, along with various examples for your convenience.
Companies use business bank accounts exclusively for business transactions, enabling them to send and receive money. It’s a bank account for a small business. Like a personal checking or savings account, a business checking or savings account lets a business make and receive payments, buy assets and inventory, and save money for unexpected costs. With this kind of account, business owners can keep their personal money separate from the business. Read more about the benefits of google my business to deepen your comprehension.
Top 12 – Types of Business Account
Any size of business can use a business checking account to keep track of payroll, expenses, and income. There are many different ways to bank for a business, and each one has its own benefits and uses. Most businesses have a lot of people working for them.
You can open a business checking account online in just a few minutes if you already have the information and paperwork you need. Find out where you can open a bank account for your business and how to choose the best bank for your business. In this article, we will discuss types of a business accounts in brief with examples for your better understanding.
Open a Merchant Services Account
A key part of running a successful business is being able to accept credit and debit card payments. This account is a common tool for managing money, just like a company checking and savings account. Depending on the agreement, businesses that use merchant services accounts may be able to move payments quickly to other bank accounts.
Certificates of Deposit
When it comes to CDs, returns are better when the annual percentage yield (APY) is higher. The biggest problem with CDs is that you can’t get to your money until the CD is paid off, or you’ll have to pay big fees. Different banks and credit unions offer CDs with a wide range of rates and terms.
We’ve seen CDs with terms as short as a few days or weeks, but the average term length is more like six months. With a longer term, the APY on a CD goes up. Certificates of deposit might have annual percentage yields (APYs) of more than 2%. If you can wait for your money to grow at a faster rate of interest, a CD could be the best business savings account for you.
Business Chequing Account
Businesses primarily use this checking account for recording cash transactions and analyzing them later to determine their profitability. The money inside the account is used to run the business efficiently. At most banks, there are a lot of different types of checking accounts to choose from. Read the fine print before committing to make sure it meets your needs. This is another types of a business accounts.
Interest-bearing Checking Accounts
The money you put into a normal business checking account doesn’t earn any interest. Checking accounts that pay you interest solve this problem. There are no limits on how much you can take out or how many times you can spend it. Instead, these accounts earn interest.
Because the annual percentage yield (APY) rarely goes above 1%, there is no interest checking account that will make your money four times as much. An investment account is a types of business account that allows companies to invest their excess cash in stocks, bonds, and other securities.
Open a Cash Management Account
Online-only banks and credit unions offer special checking and savings accounts to help people manage their money. Depending on the online bank, large deposits made to this type of account may be covered by the FDIC. The large deposit is split between several banks that are covered by the FDIC. Cash management accounts offer higher rates of interest than business checking accounts.
On the other hand, some online banks that offer this feature may require a larger opening deposit and/or a minimum amount in your account each month. In order to keep track of their cash flow, businesses must stay on top of their accounts. This often involves working with local banks to cash checks, manage cash, and handle other financial matters. Fortunately, many banks offer free checking and savings accounts to individuals who meet certain criteria.
Business Savings Accounts
Business savings accounts work the same way that personal ones do. They pay more interest than regular checking accounts (except some interest-bearing checking accounts will earn more than basic savings accounts). Catch? Withdrawing money quickly from a savings account is hard.
Federal rules said that each account could only make six withdrawals or transfers each month. Even though this rule isn’t in effect anymore, a few financial institutions have kept it. Depending on the bank you use, you may find that you don’t use your savings account very often because of this.
You can’t write a check from a checking account. How often and how you take money out of your savings account are also important things to think about. So, a checking account is the best choice if you need to make regular payments for your business.
Savings accounts cost more than checking accounts, to put it simply. Opening a business savings account costs money, and these costs are usually higher than those of a business checking account. A personal savings account is not enough for a business to plan its long-term finances.
Interest-bearing Checking Accounts
The money you put into a normal business checking account doesn’t earn any interest. Checking accounts that pay you interest solve this problem. There are no limits on how much you can take out or how many times you can spend it.
Instead, these accounts earn interest. Most banks don’t offer business checking accounts that pay interest. Companies can get more money out of their savings accounts. In that case, you might want to switch to a business checking account that pays interest.
Payroll Account
By keeping payroll funds in a separate checking account, businesses can better manage their finances. Specifically, this category pertains to wages and other payroll-related expenses. To make the process easier, this payroll account opening guide can assist you in signing up for this service. A term deposit account is a types of business account that locks funds in for a fixed period of time, often at a higher interest rate.
Business Checking Accounts
The most common types of business account is a checking account, which allows companies to deposit and withdraw funds as needed. Like a bank account, you can put money in, take money out, move money around, and pay bills.
Checking accounts give you faster access to your money than savings accounts. With a business checking account, you can put money in and take money out as many times as you want (though some banks will require you to maintain a minimum account balance).
Most business checking accounts come with debit cards that can be used at ATMs and online banking through an app on a smartphone. It won’t break the bank to have a business checking account. People who want a business checking account that doesn’t cost anything have a few options.
Accounts Receivable
What is this “accounts receivable” thing? Receivables and Payables are not typical services offered by a business bank. Accounts receivable are the debts owed by clients. The way you run your business is the same way that your customers buy your goods.
Customers owe your business money, which is shown in the balance of accounts receivable at the end of the period. A line of credit account is a types of a business accounts that businesses can use to cover unexpected expenses or short-term cash flow needs.
Accounts Payable
Everyone has to pay other people with money from their bank accounts, right? Businesses often buy goods at both the wholesale and retail levels on credit. Merchants often offer credit as a way to sell their goods. The buyer will agree to the terms when the seller gets the money to pay off the bills.
After the end of the business day, you may have a window of 30-60 days to submit your payment, as indicated by the company’s liabilities section which includes a category for accounts payable. Also, to fulfill these obligations within the specified terms, access to bank funds is necessary. Fortunately, accounts payable software can assist in tracking the available funds and ensuring the timely payment of bills.
Money Market Accounts
You know that you need both CDs and savings accounts. The main point of this article is to teach you about money market accounts. A money market savings account might be right for you if you need easy access to your money and a higher annual percentage yield (APY; usually more than 0.05% but less than 0.5%).
You can make deposits whenever you want, just like with a regular savings account, but your bank may limit how much you can take out (depending on your bank). You can also write checks from a money market account. Money market accounts are more appealing to financially stable businesses because they need more money to open them.
Frequently Asked Questions
How does a Business Account Work?
Commercial bank accounts are like checking and savings accounts for individuals, but they are made for businesses. Connecting your bank account to an online payment system makes it easy for customers to pay you and buy things from you.
What Type of Business Account Should I Open?
Instead of keeping cash on hand, a business should put money in an MMA, CD, or savings account. You need a merchant account in order to accept credit cards and debit cards.
How does a Business Account Operate?
With a corporate bank account, you can keep your business finances separate from your personal finances. The financial transactions of your business are written down on a different statement. Keeping business and personal finances separate is an important part of accounting.
Conclusion
Any business must have a bank account. Maybe a savings account that pays interest and doesn’t make it hard to take money out. Having a checking account could help you pay for cash expenses that come up often. Maybe both! We’ll talk about how to choose the best business bank account for your needs in this article. We’ll look at the types of business account and talk about the related topics in this area.