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How to compare business bank accounts

Work out what you want

It’s worth thinking about what services and features you want to be included in a new business bank account.

Check features and options

Look at different bank accounts side by side to see what services they can offer your business, such as overdrafts or free bank transfers.

Apply to a new provider

Start the process of opening a new business bank account. Find out which documents you’ll need to provide and whether your chosen provider has any eligibility criteria.

Why compare business bank accounts

Comparing business bank accounts can help you find the best account for your circumstances.

You can compare features, such as whether a provider offers overdrafts, online banking, a mobile app or banking in a branch.

You can also weigh up the cost of an account – whether it has a monthly fee or individual transaction charges – to get an idea of how much you may have to pay to bank as a business.

Looking at multiple accounts at the same time can give you a sense of what’s out there and which providers are more suitable for your business needs.

A Beginner’s Guide to Business Bank Accounts in the UK

What is a business bank account?

A business bank account is a current account designed for businesses, including sole traders, limited companies, partnerships and not-for-profit organisations.

The main difference between a business bank account and personal bank account is who the money belongs to. This has important tax implications.

If you’re a sole trader, you and your business are the same – your business income is your income, so you’ll have to pay income tax on it.

But if you run a limited company, your company is legally separate from you. This means your company’s income is taxed differently and separately from the money you ‘receive’ or pay yourself as income or dividends from the business.

As limited liability partnerships (LLPs) are also separate legal entities, they should have business bank accounts separate from their partners’ finances.

How does a business bank account work?

Business bank accounts work in a similar way to personal current accounts. You can deposit and withdraw money, receive incoming payments, use a debit card to pay for goods online or in person, and set up standing orders and direct debits.

Certain business accounts have extra features, such as invoicing, payment cards for other employees and integration with accounting software.

You can manage a business bank account online, over the phone, via an app or in a branch, depending on the provider and the type of account you choose.

How to open a business bank account

To open a business bank account, you can usually apply in one of the following ways:

In a branch: talk in person with a member of staff before applying.

• Pros: You can discuss your options with a staff member.
• Cons: It depends whether there is a branch near you. What’s more, some providers are digital-only so it would be impossible to apply in a branch.

Online via the provider’s website: apply from anywhere, and you could open an account in minutes.

• Pros: You do not need to travel to a specific location to set up an account.
• Cons: You need an internet connection and a device such as a laptop or smartphone to apply online.

Through a provider’s mobile app: set up mobile banking and manage your account on your phone as soon as it’s open without having to wait for your card and account details in the post.

• Pros: Opening an account from your phone may be less hassle than waiting in line in a branch – it can be done from the comfort of your own home.
• Cons: It could be more difficult to open an account on a mobile phone if you struggle with technology and prefer to do your banking in person.

Who can open a business bank account?

Sole traders can open a business bank account. Providers may offer you a specific sole trader account or a standard business account.

If you run a limited company or a limited liability partnership, no matter its size, you are likely to be able to open a business bank account.

Charities, clubs and societies may be able to open a business account. Eligibility is likely to vary between providers so it’s worth shopping around if you’re looking to open a bank account for a not-for-profit organisation.

Some business bank accounts have strict eligibility criteria, such as minimum or maximum turnover or trading history. Providers may also have restrictions on which business structures and industries can open an account, so it’s a good idea to look through the terms of an account to make sure you’re eligible before applying.

What is required to open a business bank account?

To open a business account, you’ll need to show proof of your identity and give the name and UK-based address of your business. Providers may also need other information, such as your industry, how many employees you have and your estimated annual turnover.

How long does it take to open a business bank account?

It can take anything from just a few minutes to a few weeks to open a business current account. It depends on the provider you apply to, and how long it takes to complete its checks.

Types of business bank accounts

There is a range of different business bank accounts available, including current accounts and savings accounts. What’s more, you can choose to bank online or instead opt for a bank with a high street presence.

Business current account

Limited companies and limited liability partnerships (LLPs) should open a business current account to manage their money and keep business and personal funds separate.

This is because your business is a separate legal entity to you, so you have a duty to keep its finances away from your own. One of the ways to do this is using a business bank account.

Not-for-profit organisations such as charities may find it useful to have a separate business account to manage their finances and keep accurate records of income and expenditure.

Sole traders can also open business bank accounts, though it’s not a requirement.

Business current accounts operate in a similar way to personal current accounts. Generally, you can withdraw or deposit cash and make payments using a debit card, whether you’re shopping online or in store. You can also accept incoming payments, transfer money to others, and set up standing orders or direct debits.

Business savings account

If your business is turning a profit, you may consider saving some of this money for the future. You could benefit from keeping the funds in a business savings account.

A business savings account lets you put aside spare cash and store it for a later date, while earning interest on it. There are different types of business savings account:

• Easy access: There are few or no restrictions on when you can deposit or withdraw money.
• Notice: You must give the bank notice before you want to withdraw money (accounts have different notice periods you can choose from).
• Fixed rate: You ‘lock away’ your money for a certain amount of time and get a fixed interest rate for the whole term.

Which savings account you get depends on your specific circumstances. If you’re unsure, it’s worth talking to a financial adviser or asking your bank for more information.

Online business accounts

If you like to manage your money on the go, via an app or through internet banking, you may want to consider an online business account.

You can get a business bank account which can be managed largely or solely online. This includes accounts from challenger banks or digital-only providers, as well as traditional banks which have diversified their offering.

If you prefer to bank in a branch, an online business account may not suit you.

Free business bank accounts

Whether you are launching a start up or you’re keen to reduce your business outgoings, you may want to look for a free business bank account.

Some business bank accounts are described as ‘free’. This usually means that you don’t have to pay a monthly fee, but you may have to pay for other services and per transaction instead. Or, it could mean that there is an introductory offer where you don’t pay for everyday services for a period of time.

You may be able to choose between a free or paid version of a business bank account, each with different features or a separate pricing structure. You could compare these to see which is more suitable for your business needs.

You should check the terms of your business account to find out more about ‘free’ business banking and what fees a provider may charge, if any.

Merchant account

If you sell goods and take payments online, by phone or in person using debit or credit cards, you may need a merchant account.

A merchant account manages incoming transactions made by debit or credit card. This can be set up with a payment processing service.

With a merchant account, transactions are processed and any fees for using a card terminal or other processing system are deducted before you receive the money.

You’ll then receive the money into your business bank account.

A merchant account is different from a business current account. To receive payments, you need one of each.

Do I need a business bank account?

Comparing business bank accounts can help you find the best account for your circumstances.

You can compare features, such as whether a provider offers overdrafts, online banking, a mobile app or banking in a branch.

You can also weigh up the cost of an account – whether it has a monthly fee or individual transaction charges – to get an idea of how much you may have to pay to bank as a business.

Looking at multiple accounts at the same time can give you a sense of what’s out there and which providers are more suitable for your business needs.

Pros

• You can build a credit score for your business.
• You will be able to keep your business finances separate from your personal finances.
• It looks more professional – some clients may want to send money to a business account rather than a personal account.

Cons

• It is another bank account to keep track of.
• There may be charges for actions that may be free with a personal account.

Business account vs. personal account

Personal and business accounts have similar features, and can both be used for everyday transactions such as transferring money and paying bills.

However, business accounts should only be used for business transactions. Likewise, personal accounts are generally not designed for business use.

We look at the similarities and differences, and consider the pros and cons of each.

Similarities between business and personal accounts

Business accounts and personal accounts have similar features, so you can use a business bank account as you would use a personal current account.

This means you can use it for your day-to-day banking needs, such as making transfers, setting up direct debits, and paying for goods in store or online.

Differences between business and personal accounts

The difference between the two is that a business account is set up for your business – it shouldn’t be used for personal transactions. Likewise, you should not use your personal account for business-related activities, unless you are a sole trader.

Mixing up the two means that it is more difficult to keep your business and personal finances separate, something you are required to do if you run a limited company. It can also be a good idea to keep these separate if you’re a sole trader, as it can help you organise your transactions when it comes to filling in your self-assessment tax return.

Pros of using a personal account

• Ease: For sole traders, all your money is in one place.
• Familiarity: If you use the same account for both sole trader and personal transactions, you’re already used to how it works.

Cons of using a personal account

• It’s often against the bank’s terms and conditions to use a personal account for business: your provider could close your account if you do.
• Limited companies cannot use a personal account: your business is legally a separate entity to you, so you need a business account.

Traditional business account vs. online business account

Would you prefer to open a business bank account at a traditional bank with branches on high streets around the UK? Or would you be happy with an online-only account?

There are advantages and disadvantages to each option. For example, some online business account providers offer useful extras, such as tools to help you categorise your transactions, keep track of staff expenses and put money aside for your tax bill. However, if you want to deposit cash or cheques, or negotiate an overdraft, you might find it easier at a high street bank.

With so many options available, it’s important to take the time to decide what you need and weigh up the pros and cons of the different accounts.

Similarities between online and traditional business accounts

• Everyday banking: You can use them for your day-to-day banking, including transfers, standing orders, direct debits and card payments.
• Multi-platform access: Traditional high street banks may also have internet and mobile banking, so you can manage your account online too.

Differences between online and traditional business accounts

• Customer support: Traditional high street banks have branches where you can go in to manage your account or ask for help, while online accounts offer support digitally or over the phone instead.
• Set up time: Online business bank accounts may take less time to set up than traditional bank accounts, though this is not guaranteed – it depends on your provider and individual circumstances.

Do I legally need a UK business bank account?

Whether you legally need a business bank account depends on the structure of your business.

Self-employed

If you’re self-employed, whether you need a business bank account depends on how your business is set up – i.e. whether you’re a sole trader or run a limited company.

If you’re self-employed and run your own limited company, the company’s finances must be kept separate from your own.

In the eyes of HMRC, you are both the owner and the employee of a limited company. In any case, it is a separate legal entity from you and must be treated as such. You need to open a different account for your business.

» MORE: Sole trader vs. self-employed: what’s the difference?

Freelancer

If you’re a freelancer operating as a sole trader, you don’t have to have a business bank account. However, you may find it helpful for keeping your personal and business finances apart.

If you run your freelancing business as a limited company, you do need to have a separate business bank account for your business funds.

Sole trader

You do not need a separate business bank account if you are a sole trader. Your business is not legally separate from you, so a separate account isn’t a requirement.

However, you might want to set one up to keep your work finances clearly separate from your own. This may help when it comes to completing your self-assessment tax return, as you won’t have to trawl through months of transactions to find which were business expenses.

Limited company

As a limited company, you do need a business bank account. This is because your company’s finances are legally separate from your own.

Again, this should help you when it comes to paying your tax bills – it will be easier to work out what you owe when all your business income and outgoings are listed in a separate account.

How to compare business bank accounts

A good place to start when you’re comparing business bank accounts is to decide which features and services you need from the account.

Next, compare the charges and fees for the accounts you’re interested in and decide what you’re prepared to pay.

To find your ideal business account, you might want to learn more about the providers. For example, some people like to check the ethics and values of their bank – you can search for this on the bank’s website. And how important is customer service? You might want to read what existing customers have to say on review sites, such as Apple’s App Store, Google Play and Trustpilot.

Not sure what you need? Take a look at the list below of common bank account features and services to help you create your own ‘need to have’ list of features which are essential for your business. And then list any other options which would be ‘nice to have’.

Deposits and withdrawals

Check whether you have to pay for deposits and withdrawals, whether you get a certain number free per month, or whether they are all included in one monthly price.

You should also look at where you can deposit cash or cheques. Some business accounts may not accept cash or cheque deposits, while others let you deposit funds at the Post Office, at a PayPoint or at a branch.

Fees

Business bank accounts usually come at a cost. Some have introductory ‘fee-free’ offers, but business bank account providers may charge you for services at some point.

They do this in two different ways – it’s up to you to decide what suits you best.

Monthly or annual fee

Some business bank accounts charge a monthly or annual fee. Some transactions and services are usually included for ‘free’ as part of the account, but you may have to pay extra for other features. If you’ll need to make lots of transactions, this way of paying for your account might be more cost-effective for you.

Fee-per-transaction

This type of business account is often promoted as ‘free’ or ‘no monthly fee’. But you’ll pay for the service through fees for certain transactions, such as transfers or cash withdrawals. If you don’t expect to use your account much – for example, if you won’t make many deposits or transfers – then this type of account could work out cheaper than paying a monthly fee.

Bank transfers

If you intend to make lots of transfers, it’s worth checking whether you have to pay for these individually or whether they’re included in one monthly fee. One option could be more cost-efficient than the other, depending on your circumstances.

For example, if you have to pay 20p per transfer and you make 50 transfers per month, this would cost you £10 per month. If an account had a £5 monthly fee with all transfers included, this option could be more suitable for you.

In particular, if you rely on international transfers you should make sure that the bank you choose allows you to do this, as not every provider does.

Standing orders

You can set up standing orders with a business current account. Standing orders let you pay another account a fixed amount on a specified date, at a frequency you choose. For example, you could set up a £100 payment to go out to your business savings account every month on the 25th.

Direct debits

Direct debits are also possible using a business current account. These may be used for paying your business energy bill, for example. You set up a direct debit agreement with the company, and it can then take a set amount of money out of your account on a pre-agreed schedule.

» MORE: What’s the difference between a standing order and a direct debit?

Debit card

Business current accounts generally come with a debit card, allowing you to pay for goods or services, and take out cash from an ATM.

You may be able to get multiple debit cards for your account. For example, if you want to give certain employees a card to pay for expenses, or if you want every manager to have a debit card. Availability depends on the provider, so it’s worth checking if this is something you’re interested in.

Mobile app

Providers may have an app that you can use for everyday banking tasks, such as checking your balance, making transfers and setting up standing orders. If digital access to your account is important to you, you should check if an app is available.

In addition, you may want to consider the following features.

Overdrafts

You may be able to get an overdraft to borrow money to support your cashflow using your current account (subject to eligibility status, fees may apply).

FSCS protection

Accounts with UK banks may be protected by the Financial Services Compensation Scheme (FSCS), up to £85,000.

Deposits with e-money providers are not protected by the FSCS. However, e-money firms are regulated by the Financial Conduct Authority (FCA) and must follow safeguarding procedures when dealing with customers’ money.

Customer support

You may want to pick a provider with branches near you so you can speak to a member of staff in person, or one that offers 24/7 support online.

Switching

Switching from another business banking provider could be organised for you if both your new and old banks are signed up to the Current Account Switch Guarantee.

International payments

If your business relies on international transfers, you may want to look out for an account that can provide these and to check the fees for this service.

Cash or cheque deposits

If you handle a lot of cash or cheques, you may want a business account that supports deposits either in a branch, via an app or at another convenient location.

How to open a business bank account

What you need to do to open a business bank account will vary depending on the account provider.

Along with personal ID, proof of your residential address, and proof of your business address, you may also be asked to show evidence of your annual turnover or estimated income, such as your previous tax return or your business plan.

Tips for getting the most out of your business bank account

Business bank accounts can come with a host of features and perks. It’s worth looking into what’s available to you, such as:

• Introductory offers: providers may offer free banking for a period after you open an account.
• Accounting software integration: you may be able to get a bank account that offers integration with your accounting program.
• Invoicing tools: if you want to cut down on your business admin, you could find an account that provides an automatic invoicing service
• Business support: you may have access to experts and relationship managers to help you manage and grow your business.

To make the most of your business account, you might consider comparing deals from different providers on a regular basis. If another bank has an account better suited to your needs, it could be worth switching.

You can use the Current Account Switch Service to switch bank accounts if your old bank and new bank are signed up to the scheme, and the account meets the eligibility criteria.

Switches made through this service are backed by the Current Account Switch Guarantee, so you’re protected if anything goes wrong during the switch. More information about eligibility, the switching process and the guarantee can be found on the scheme’s website.

About the Author

Kristina Fox

Kristina is a writer at NerdWallet who focuses on writing finance content for small businesses, as well as young people and students. A recent graduate trading French for finance, she…

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