10/20/2021

Business Banking

Types of Business Bank Accounts

Opening a business bank account is one of the first steps to take when starting your own business. In this post we will go over the six major types of business accounts to consider.

Tim Wu
Tim Wu

Head of Growth

Table of Contents

Opening a business bank account is one of the first steps to take when starting your own business. Six major types of business accounts to consider are listed below:

  • Business checking account
  • Business savings account
  • Business certificates of deposit (CDs)
  • Money market account
  • Merchant account
  • Foreign currency account

Business checking account

A business checking account is the most versatile of all types of business accounts. It provides a safe place for you to store business money and still access it easily. Much like a personal bank account, you can add, withdraw and transfer cash to and from your business checking account.

On top of that, business checking accounts provide an easy way to receive funds and make payments from one place, which can be invaluable for businesses of any size. Although rare, some business checking accounts do earn APY on any amount held.

The biggest advantage of a checking account over other types of business bank accounts is that it comes with fewer restrictions. It gives you multiple ways of withdrawing money, including ATMs, debit cards, checks, electronic transfers and wire transfers.

The same also applies to deposits. As long as your bank allows it, you can add money to your account balance via mobile check deposits, wire transfers, electronic transfers, ATM deposits and so on. This flexibility in deposits and withdrawals makes a business checking account perfect for managing daily business finances. You can use it to accept payments from clients and customers as well as pay for bills and business expenses.

One thing to keep in mind is that some business checking accounts do have monthly transaction limits. Exceeding this limit attracts additional transaction fees. So, make sure to choose the best business checking account that meets your needs.

It also helps if your checking account can easily integrate with any third-party apps that your business uses. If you can link checking with other management software, then you won’t have to manually transfer transaction details and other info from one account to another.

For example, the Nearside Business Checking Account seamlessly integrates with accounting software like QuickBooks and Xero. You can also use it with marketing apps like SEMRush and Constant Contact, as well as Payroll & HR tools like Gusto and Zenefits. Nearside brings checking and management into one place, which can be great for small business management.

When shopping for a checking account for your business, your options will mostly narrow down to traditional banks vs. online banking. Traditional banks are great if you prefer face-to-face service because they have physical branches. They also offer more options as far as cash deposits.

Online checking accounts, on the other hand, are both cheaper and more convenient than traditional banks. Most of them charge little to no monthly fees and come with special perks, like cashback rewards. Plus, most online checking accounts have no transaction limits. If you prefer the ease of online and mobile banking, this may be the option for you.

The bottom line: If you only want to open one account for your business, make it a checking account. Compared to other types of business accounts, checking accounts are cheaper, more versatile and easier to integrate with cash flow management tools.

Business savings account

While only a handful of checking accounts earn interest, all business savings accounts do. They are, therefore, ideal for storing operating profits that you’re not planning to use in the near future. But this comes with a tradeoff: you get limited access to your account balance.

In fact, the Federal Reserve passed a law in 2020 that limits withdrawals and transfers on savings accounts to only six per month. Some banks go a step further to limit the number of deposits as well. Others don’t even allow direct withdrawals using debit cards or checks. Thus, depending on the bank, your business may find itself very limited when it comes to accessing cash.

This restriction is not entirely a bad thing. Savings accounts tend to be more expensive than other types of bank accounts for businesses. So, limiting deposit and withdrawal costs is one way of keeping fees low. Still, expect to pay more transaction and maintenance fees on a savings account than a checking account. The same goes for minimum deposits – they are higher for savings accounts.

There are two main types of business savings accounts: term deposit accounts and call accounts. Term deposit accounts are opened for a specified period of time (like 1 year or 5 years). The money is locked in the account and can’t be accessed until the term expires.

Call accounts allow limited access to cash. They typically don’t have an expiry date and you can keep the account active for as long as you need to. For that reason, call accounts make more sense when you need to save but also want limited access to business cash. Term deposit accounts are ideal when you’re saving for a goal; e.g. a purchase of equipment after 5 years.

The bottom line: A business savings account is a great place to store business profits and let them grow. The APY on savings accounts is not the highest out there, but you still make some extra dollars on top of what you save.

 

Business certificate of deposit (CD) account

Certificate of deposit (CD) accounts are similar to savings accounts, with a few key differences. For one, a business certificate of deposit account attracts a higher APY than a savings account. With some proper shopping, you can find business CDs with over 1% APY; some even 2% or higher. This makes a certificate of deposit an ideal alternative to the good old savings account, if what you're interested in is higher returns.

Secondly, the interest rate on a CD account is always locked for the full term of the account. The upside of this is that if interest rates drop, then your account won’t be affected in any way. It will still earn the same APY. On the downside, if interest rates rise, you won’t enjoy a higher APY either.

There is, however, a way around the issue of fixed interest rates (should you need it). It’s called CD laddering and it involves opening several CDs with varying terms. When the shorter CD expires, you take the money and reinvest it in a longer CD. This allows you to take advantage of higher interest rates (assuming rates tend upwards).

Something of note about business CDs is that you’re not allowed to touch the money until its maturity date. That can range from a few months to several years, depending on pre-agreed terms. You can still opt to withdraw the money midway through the term, but that will attract unbelievably high penalties.

Because of this lack of access to money, CDs are not ideal for holding cash that you need for operating expenses. But they are among the best bank accounts for saving.

The bottom line: Business certificates of deposits are one of the best types of business bank accounts for saving. They offer higher APYs and thus higher earnings. But since the money is locked for the entire term of the CD, it’s wise to only use this alternative if you’re confident that you won’t need to make any withdrawals before the term ends.

 

Money market account (MMA)

A business money market account (MMA) is like a savings account that’s blended with a few features of checking accounts. As is the case with a savings account, the federal law limits the number of times you can withdraw from an MMA to six times per month. This makes it ideal for saving business profits rather than using the account for operations.

So, what differentiates money market accounts from savings accounts? That boils down to interest rate, minimum deposits and options for making withdrawals. You’ll also typically get a higher APY rate for a money market account, however the tradeoff is that money market accounts come with higher minimum deposit requirements. That puts them among the least suitable types of business accounts for companies that can’t afford to hold minimum deposits.

As far as making withdrawals, money market accounts are closer to checking accounts than saving accounts. Depending on the bank you use, you may be able to write checks and do ATM withdrawals pretty much as you would with a checking account.

However, keep in mind that your business can only make a maximum of six withdrawals per month. It’s a totally different case when it comes to adding money to the account. That you can do at will – just like a normal savings account.

The bottom line: Business money market accounts are among the least popular types of bank accounts for business because they typically have high minimum deposit requirements. However, they also attract high APY, which makes them excellent for storing savings.


Merchant account

A merchant account is a type of business account that you use to accept debit and credit card transactions. When a customer makes a payment, that money goes to your business’s merchant account first before being transferred to your other accounts. It typically takes two or three days for payments to reflect in the final bank account.

The biggest problem with merchant accounts is that they come with their own fees. This often results in your business paying more fees to sustain two different accounts. That said, a merchant account may still be necessary if your business accepts card payments, although alternative ways to accept credit cards also exist.

The bottom line: it makes sense to open a merchant account if your business accepts and uses card payments. Oftentimes this account acts as an intermediary for money before it’s transferred to your business checking or savings account.

 

Foreign currency account

Also known as a borderless or multicurrency account, a foreign currency account is a type of account that allows your business to send and receive money in multiple foreign currencies. It gives you the option to convert all your money into dollars or hold it in the currency used to pay. Depending on your bank, a foreign currency account may earn your business interest. It’s generally ideal for businesses that serve customers across various countries, who may need to pay in many different currencies. For instance, many foreign countries have bank accounts denominated in US dollars to make facilitating international transactions easier.

The bottom line: if you’re running a cross-border business, then you may need a foreign currency account. It will help you to accept and complete payments in various currencies with ease.

 

How do I open a business account?

To open a business account, you'll just need to provide some documentation. Depending on what kind of business you operate, these documents can include your federal Employer Identification Number (EIN), your business license, your social security number, and organizational documents. 

For more detailed information about the documents you'll need, read our guide to opening a business checking account.

 

Consider a business checking account

If you can only have one business account, your best option is a checking account. It’s versatile enough that you can use it for business checking as well as for holding savings. With modern technology, most checking accounts also integrate with merchant services like Visa, Mastercard and PayPal to directly transfer payments to your account. This negates the need for a separate merchant account.

Just as important, checking accounts are generally cheap to open and keep active. The Nearside small business checking account is free to open and maintain. It comes with no NSF fees and no minimum balance requirements.

Want to learn more? Get started today with Nearside, a modern checking account that’s designed for business owners.


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