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Small-Business Checking Primer: 5 Key Questions Answered

These accounts separate your personal and work finances, and can protect you in a lawsuit.
April 25, 2018
Banking, Checking Accounts
Small-Business Checking Primer: Answers to 5 Essential Questions
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A small-business checking account helps 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 answers to five key questions about these accounts.

  1. Why do I need to keep my personal and business checking accounts separate?
  2. How do business checking accounts vary?
  3. What factors should I consider when choosing a business checking account?
  4. Should I use a credit union?
  5. Should I open a business account at my personal bank?

1. 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 commingled accounts may put your personal assets at risk in a lawsuit.

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.

» Ready to get started? Check out NerdWallet’s best free business checking accounts

2. 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.

You might have to pay to deposit more the $3,000 in cash each month or make a larger-than-normal number of transactions.

Transaction limits

In addition to limiting cash deposits, banks often limit account holders’ 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.

Analyzed checking

This type of account is for businesses that process a much higher volume of transactions and keep a high balance. The bank evaluates your business’s individual needs and applies an earnings credit rate, or ECR, based on the account balance and the level of account activity, which offsets some of the bank’s fees. Eligibility varies by bank. For example, Bank of America offers Full Analysis Business Checking to small businesses that maintain minimum balances of $60,000 and, within a month, write more than 150 checks and deposit more than 200 checks.

3. 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’ll need to stay within cash and transaction limits to keep total costs low.
  • Other services. Many banks 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.
  • Interest. Some business checking accounts pay interest, which is a bonus, as long as it’s not canceled out by fees.

» Bank local: Find free business checking in your state

4. Should I use a credit union?

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.

If you don’t need access to thousands of branches and ATMs, a credit union might give you lower fees and better service.

Keep in mind that credit unions might have just a few locations and ATMs, compared with major bank chains, which can have national reach. 

5. Should I open a business account at my personal bank?

Your home bank 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.

Need financing? Compare business loans and business credit cards.

Margarette Burnette is a staff writer at NerdWallet, a personal finance website. Email: mburnette@nerdwallet.com. Twitter: @margarette.

Divya Raghavan, Benjamin Pimentel and Alice Holbrook contributed to this article.

Updated April 25, 2018.