Choosing the best business bank account

What is a business bank account?

Most banks offer the option to open a dedicated business bank account. These are different to personal accounts in that – you guessed it – they’re focused around business use. As well as keeping your business finances separate from your personal finances, a business bank account might include focused services such as:

• budgeting tools
• automated expense categorisation
• account management
• integration with accounting software.

Charges and fees may be different to what you pay on a personal current account. You’ll also have access to business-related financial products – such as loans, credit cards and overdrafts – to help you as your business needs change, whether that’s paying for everyday running costs or investing in your scale-up plans. 

These days the choice is greater than ever when deciding the best business bank account for you. Commonly trusted UK business banks include:

• Lloyds Bank
• Metro Bank
• The Bank Of Scotland
• Yorkshire Bank
• Clydesdale Bank
• Santander’s Business Banking
• Natwest’s Business account.

The high street banks above offer in-branch services. However, there is also a wide range of digital-only banks (also known as challenger banks). Some of the best known include Monzo, Starling and Tide Business. 

If you are looking to change, it’s now easier than ever to switch business bank accounts – it takes just seven days with most of the work done by the banks. 

Do I need a business bank account?

Sole traders are not required by law to have a separate business account – but it’s strongly advised. Even though there may be fees and charges in the future, keeping your personal and business income and costs separate can make life much easier when doing your accounts, claiming expenses and completing your tax returns, while making mistakes less likely. In any case, many banks will not allow you to use your personal bank account for business, while limited companies must have their own bank accounts.

Whether you’re starting a new business or you’re more established and thinking about switching banks, here are five key things to consider when shopping around for the best business account…

Business bank account introductory offers

Many startup owners open a business current account at the bank where they have their personal current account. This can be the quickest and easiest option, but it may not be the best choice when opening a business current account. When choosing a finance and borrowing account you may also want to consider related products, poor credit scores, fees for cash deposits, public liability insurance, fees for money transfers, and annual fees.

From high street to online-only banking, research the full range of business bank account options available and compare introductory offers. Normally, new businesses get charge-free periods (eg first 12 or 18 months), possibly followed by discounted standard charges or fees for a fixed period. Less generous introductory deals are also available to businesses that want to switch banks.

Monthly business bank account fees and standard charges

Once introductory periods are over, businesses normally pay monthly bank account fees (usually averaging £5-£7 for high-street banks; more for different features/terms from these and other providers). Some accounts are not available to startups; banks normally offer accounts better tailored to new businesses. 

Banks can also make a small charge every time your business:

• withdraws cash 
• pays by a cheque
• pays in a cheque
• pays cash in
• pays by bank transfer
• uses or goes over its overdraft
• receives a card payment
• receives foreign currency payments from overseas.

When comparing business bank accounts, find out exactly what fees and charges you will pay and when. Some current account providers offer a cheaper tariff of charges for transactions made electronically (online) to reflect the lower cost of servicing these transactions compared to traditional branches.

Business bank account interest rates

Many current business banking website accounts offer a 0% AER (Annual Equivalent Rate – the interest money in your UK business current account will earn), although there are some (usually subject to different terms and conditions) that offer current accounts with 0.1%-0.25% AER.

In reality, interest rates are much less of an issue for many small businesses when comparing current business bank accounts, because other options (including savings accounts) provide greater interest/returns. Business savings accounts can offer 0.65%-1.75% AER, although there are minimum deposits (eg £5,000) required and they must be left for an agreed time (eg one year).

Main business bank account key features/benefits

Business current accounts normally include similar service features as personal current accounts and some will be more relevant/attractive to your small business than others. For example, your business might want an overdraft or you may want a cheque book or need to bank cash regularly. Business owners may also want to consider internet banking opportunities such as mobile banking apps.

If your business needs access to finance, such as bank loans or a business credit card, you may be able to find slightly better rates/deals from someone other than your bank, so it pays to perform price comparisons. Most providers offer online banking facilities, of course, which can save you time and help you to better manage your cash flow and is something that you must consider when you compare business bank accounts. You might need to make frequent online payments to recipients in the UK or overseas or receive payments in overseas currencies as a business or sole trader. 

Your chosen current international business bank account should provide the most cost-effective solution – especially when concerning foreign exchange rates. You may be able to negotiate a reduce tariff if you think a bank’s standard charge is too expensive. No harm in asking. A bank may be able to suggest ways to minimise your banking costs, for example, by paying online rather than by cheque.

Customer service and support

Which is the best business bank account?

The UK has a highly competitive banking sector and its emergence as a leading player in the fintech world has only increased the choice on offer. For businesses this is good news as it means you’ve got lots of banks vying for your custom. In conclusion, when picking the best business account think about the following factors and what is most important to you:

• Service quality – See if the bank has won any awards and how it performs in customer satisfaction surveys. 
• Mobile and app services – All the banks now have a substantial digital offering. Understand what sorts of features are included within their app – e.g. expense categorisation, budgeting and invoicing tools.
• Overdrafts – Having an overdraft facility can be incredibly useful. However, this is not always available – especially with digital-only banks. 
• Account management – If you think you’d benefit from having a direct contact at the bank for advice and support, some paid accounts offer dedicated account management.
• In-branch services – If you’re going to need to pay in cash or cheques, you’ll need to know how this is done if your bank doesn’t have in-branch services.