How To Understand Business Bank Accounts

By Jennifer Fletcher, 21 Jan 23:09

Banking Online, Offline, Internet Banking ... A business bank account is used for business operations and managing cash related to your business

There are many different kinds of business accounts available within the basic categories of checking, savings and money markets offered by different banking institutions. Today, business owners are besieged by a wide array of choices.

The following represent "generic" components key to any business account. Careful consideration of each of these elements - and using them to conduct comparisons of different offerings - can help you choose an account that meets your particular needs.

Institution. This is the kind of establishment offering the account: banks, thrifts and loans, credit unions, mortgage banks, etc. There are different reasons to bank at different institutions. For example, loans are sometimes easier and less expensive to obtain from a thrift, which would also expect you to maintain your business checking and savings there.

Account Name. This is the "marketing" name, particular to that institution, given to different kinds of accounts. Account names usually vary from institution to institution, but there are few standards.

Minimum To Open. This is the minimum initial deposit required to open the account. The amount varies widely, depending on the kind of account and the institution.

Minimum To Avoid Fees. This is the minimum balance that must be kept in the account to avoid a monthly service charge and sometimes also other fees. This can be a real killer if the minimum is not maintained.

Service Fees. These are the monthly fees charged if the account falls below the required minimum. These can also include fees charged per each transaction (such as a deposit, ATM or teller fee, or number of transactions; i.e., per number of checks). Again, these vary widely. Where you live influences fees: for example, fees are more expensive in California than in Oregon.

Interest-bearing. This explains whether or not your account is set up in such a way that it will earn you interest. Interest-bearing accounts often require a higher minimum balance and charge higher fees. These accounts can be savings or checking.

More Components
Annual Percentage Yield. This is the percentage of return on your money and varies widely from account to account and from institution to institution. For example, high rate money market accounts currently turn up an average yield of 5.84%.

Annual Income. This is the amount in cash income created by your bank's yield.

NSF. This is the fee that you as an accountholder will be charged for any checks written to you that bounce. NSF fees vary if more than one check is involved and/or if the institution pays the check.

"They gave me a book of checks. They didn't ask for any deposits." - Congressman Joe Early in response to questions about the House Bank scandal (January 1999)

Overdraft Protection. This prevents you from inadvertently bouncing a check to someone else, usually by linking your accounts - and/or a bank-issued credit or debit card - together. For credit line overdraft protection, a full 61% of banks reported that they charge no annual fee.

Checks Returned. This is whether or not the institution will return your canceled checks with your monthly statement (can vary from account to account). Some people prefer to have the actual hard copies back for record keeping, while others view it as useless clutter.

Business Express. This is a computerized cash management system that allows you to access account information via telephone.

Online Banking. This is whether or not your brick-and-mortar institution is set up to allow you to easily monitor your business account online. There are many advantages to having direct access to your accounts online, including being able to monitor them on a daily basis.

Online Only. This refers to an online bank allowing accounts to be opened on a standalone basis by any business owner that does not have a brick and mortar facility. There are many advantages to online banks (such as lower fees), as well as disadvantages.

Special Features. These can include linked debit and credit cards, automatic bill paying, payroll, 401 (k) plans, and a variety of other features, including merchant services (the ability to process credit card sales) and timed business deposits. These vary from account to account and from institution to institution.

Account Types - 1 of 2
Though the specific names given to different types of accounts vary widely from bank to bank (and state-to-state), their basic concepts and types of features remain the same. However, different kinds of accounts often have different requirements and offer specialized packages of benefits and features.

Commercial Checking. This kind of account is ideal for businesses that typically process hundreds of transactions per month.

Smaller Business Checking. Usually this kind of account charges a flat monthly service charge - rather than a charge per item or number of items - and makes maintaining your minimum balance far easier.

Non-Interest Bearing Checking. Many different kinds are available and vary according to minimum balance required, number of checks and transactions, and service fees.

Business Checking with Interest. This usually earns you interest on all of your available checking balances. (The average balance required to avoid fees on an interest-bearing account is $2,394; the average monthly fee is $10.23.) Usually you are limited in the number of checks you are able to write. In California, only sole proprietors and nonprofit organizations are eligible for this kind of account.

Business Checking With Special Features. This kind of customized bank account is designed for businesses with low to moderate transaction volumes and limited cash balances. Value-added services help business owners manage their day-to-day business as well as their personal finances.

Business Savings. This usually earns you a competitive variable interest rate compounded daily. (With higher minimum balance accounts, you earn higher interest and are often also able to write checks and initiate transfers.)

Account Types - 2 of 2
Certificate CD. This allows you to set aside money for a large future expenditure. If you think you will need the interest for working capital, you can usually arrange to have it credited to your business checking or savings account. This is a non-liquid account; i.e., you are unable to touch the money in the CD for a pre-agreed upon length of time.

This kind of account requires a high minimum balance and is a liquid savings account (as opposed to a certificate CD). It offers a high interest rate from money markets and also the ability to write limited checks.


"Marriage is like a bank account. You put it in, you take it out, you lose interest." - Professor Irwin Corey Investment Account.


"Sweep" Account. A sweep account combines an investment account with a checking account in which a business owner is required to maintain a threshold balance. The bank then "sweeps" any excess funds into an investment account. When the account drops below the minimum required, money is automatically "swept" into the checking account to cover checks and other debits. (To meet the minimum balance of a typical sweep account, the business owner must make a substantial deposit ranging from $20,000 to $100,000.)

A sweep account can allow a small business with large cash surpluses to make the most of their dollars, but is it not an account for a business with a high number of transactions each month.

Cash Management Account. This combines a checking account with a money-market fund, a credit or debit card, and a brokerage account. You can open an account at a brokerage or choose a bank with a brokerage service.

This way, all your cash activity is summarized on one monthly statement. This kind of account is ideal for a business owner with lots of cash who doesn't have the time for or interest in managing their money and investments.

Specialty Accounts. These include lawyer's accounts, escrow accounts, nonprofit organizations, etc. Ask your institutions if they have a specialty account for your area of business.

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