How could a business savings account could help you grow your business?

In this guide, we’ll explain what a business savings account is and what you can do with it. We’ll also look at what you need to open one and the different types of savings accounts available.

Business savings accounts: the basics

A business savings account works like a personal savings account. You can deposit funds into it, and it typically offers a better interest rate than you’d find with a standard business bank account. 

Usually you would deposit funds that you don’t need right away - like extra profits or money put aside for tax. The longer the funds remain in the savings account, the more interest you can potentially earn. 

There are several types of business savings accounts available and the limitations they offer on accessing your money differs. The longer you can keep the money in the account, the more generous the interest rate usually is. Some accounts may charge you for accessing your savings early.

What are the benefits?

There are a range of benefits that can stem from a business savings account and the extra interest you could earn. These include: 

A rainy day fund - Having some extra cash available for unexpected events or cash flow disruptions is a sensible idea for any business.

A safety net - You never know when you might need an emergency fund to cover unexpected business expenses. 

Growth - If you’re looking to grow your business then earning interest on your cash can be a great way to do so. You can use the extra funds to reinvest and seek growth opportunities.

Protection - A business savings account is a safe place to keep your money. Many business savings account providers are also part of the Financial Services Compensation Scheme (FSCS). That means if the bank or building society goes under, the FSCS could compensate you up to £85,000.

Personal and business finances kept separate - Keeping business and personal finances separate can help make tax returns simpler and makes accounting and financial management easier. 

Is my business eligible?

Different savings accounts and providers may have different eligibility requirements. You’ll be able to see a detailed breakdown of what’s required during the application process. 

There are some more general eligibility requirements though. You’ll usually need to be:

• Over 18

• A UK resident with a UK business

• Able to provide identification and contact details

Once you’ve got everything together, the application process should be relatively straightforward. You can usually apply for a business savings account online or in branch. The provider is likely to ask for the information and documentation it needs to satisfy your eligibility. Providing all of that is sufficient, your account should be open and ready to use. 

Some interest rate offers on some business savings accounts may only be available for a limited time. So you don’t miss out on the account you want, it's a good idea to have as much information to hand before starting the application process. 

Types of business savings accounts

While all savings accounts let you deposit funds you want to save, some offer additional benefits. These are usually focused on differing interest rates set by how long you’re prepared to keep the money in the account. 

Here are some of the more common types of business savings accounts you’ll find:

Instant access - This type of account is usually less restrictive. It typically allows you access to your money quickly which can help you respond to unexpected bills without delay. 

High-interest - If you’re looking to maximise the money you have to put to one side, this could be the type of account to consider. They typically offer more competitive interest rates.

Fixed term - These accounts usually have a fixed period where you cannot withdraw your money. In return you’ll usually get the best interest rate offered. If you can do without the money it’s worth considering, but if you need flexibility it might not be the best option. 

Notice - You’ll need to let the savings account provider know when you intend to withdraw cash with this type of account. The length of notice you’ll need to provide depends on the terms of the account. These accounts usually offer higher interest rates. 

Do I need to pay tax?

Any interest you make on your savings is paid to you without tax being taken off. So that means any money you make in interest needs to be factored into your tax return. It may then be that you need to pay tax on it. 

To avoid the issues that can arise from unforeseen tax obligations, it’s worth keeping a clear record of any money gained from your business savings account. 

If you’re a sole trader, you can earn up to £12,570 for the 2023/24 tax year. This figure includes any potential interest earned on savings. If, excluding savings interest, you earn less than £17,570, you can earn up to £5,000 in savings interest without being taxed on it. 

If you’re running a limited company then you pay corporate tax on all profits. That includes interest on savings. 

If you’re unsure, then it might be a good idea to speak to an accountant or financial adviser who can best help provide information based on your personal circumstances.