Small Business Corner

A small-business checking account can help business owners manage taxes, as well as legal and practical money issues. Having one also makes a business look more credible, it means customers and suppliers can write checks to the business, not the owner’s personal account.

Business checking accounts and personal accounts are similar in some ways. Both often have monthly fees that are waived if the account holder meets certain minimum balance requirements. And both levy overdraft fees for negative balances. But there are important differences.

Here are some key questions to consider before opening a checking account for your small business:

Why do I need to keep my personal and business checking accounts separate?

With a business account, you’ll deposit checks made out to your company in your business checking, not your personal checking account. Likewise, you’ll pay business expenses out of the business account.

Having separate accounts and separate record-keeping makes it easier to deduct business expenses for taxes. It also better protects you if legal action is taken against your company. Having commingled accounts may put your personal assets at risk in a lawsuit.

How do business checking accounts vary?

Cash Deposit Limits. Many business checking accounts limit the amount of cash that businesses can deposit for free each billing cycle, sometimes as little as $3,000. For deposits above that, banks often charge a cash handling fee, sometimes around 30 cents for each additional $100. If your business deals mostly in cash, such as a restaurant or a venue that charges cash admission, look for accounts with higher cash deposit limits.

Transaction Limits. In addition to limiting cash deposits, some accounts limit monthly free transactions. These usually include paid checks, teller deposits, ATM deposits and electronic financial transactions. If you go beyond the monthly limit, you’ll generally have to pay for each additional transaction. Some banks charge around 40 cents per transaction after you pass 200 transactions per month.

What factors should I consider when choosing a business checking account?

Expenses. There are many free business checking accounts that don’t charge monthly service fees — but you may need to stay within cash and transaction limits.

Interest. Some business checking accounts pay interest, which is a bonus, as long as it’s not canceled out by fees.

Other Services. Many financial institutions waive monthly maintenance fees if you use their merchant services or business credit cards, or keep a minimum balance across multiple accounts, including business savings.

Should I open a business account at my personal bank?

Your primary financial institution is a good first stop when shopping for a business checking account. But you may find you need a higher level of customer service. Or you might be surprised by the fees charged for exceeding cash or transaction limits. Your company could be better off at another institution.

Should I use a credit union?

A credit union might give you lower fees and better service than a bank. Credit unions often don’t charge monthly fees for their business accounts, and they’re known for good customer service. In addition, credit unions can have high cash deposit limits — $20,000 per month in some cases — making them a good choice for restaurants and other businesses that deal mostly in cash.

Keep in mind that credit unions might have just a few locations and ATMs, compared with major bank chains. To avoid this, find a credit union that participates in co-op services or belongs to a network with a national reach.  

Consider taking advantage of credit union membership for your small business. You may also find lower rates on other business services like term-loans, credit cards, and equipment loans.

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