What Are The Different Types of Business Bank Accounts?

When it comes to opening a bank account for your business, there’s more than just one type of bank account to consider. The main options are business checking accounts, which handle day-to-day transactions like payments and bills and business savings accounts, which help you stash away funds for future use while earning interest. Other specialized accounts include merchant accounts for processing credit card payments and money market accounts, which combine checking features with more favorable interest rates.

Each type serves a different financial purpose, so choosing the right mix depends on your business needs. It’s up to you to understand the differences and think about what types of bank accounts would serve your business best. Keep reading for more information.

Types of Bank Accounts for Businesses

When you’re running a business, managing your money wisely is crucial. Business bank accounts help keep your personal and business finances separate, making it easier to track where everything’s going. Here’s a deeper look at some of the most common business bank accounts types:

Business Checking Accounts

This is the main workhorse of your business banking setup. Think of it as your business’s wallet. You’ll use this account for on-the-go transactions like paying bills, accepting payments from clients, and handling everyday expenses like office supplies or employee payroll. Most banks offer free checking accounts, but some may charge a small monthly fee based on how many transactions your account makes.

Why you need it: If you’re making regular transactions, a checking account keeps your business transactions flowing smoothly. Plus, separating personal and business expenses helps avoid a headache come tax-time. If your business uses QuickBooks for its accounting processes, consider checking out our guide on the best banks for QuickBooks integration.

Business Savings Accounts

Saving money is necessary for any business. It’s mostly important for common business purposes like future investments, emergency funds, or paying your taxes. A business savings account lets you put away extra funds while earning interest at the same time, boosting your account balance in the process. The interest rate won’t be mind-blowing, but hey, every bit helps!

Why you need it: It’s a safe place to build a financial cushion. Plus, since it earns interest, your money grows passively over the life of your business.

Merchant Accounts

If you’re selling products or services and accept credit card payments, a merchant account is a must. It’s designed specifically to handle all types of card transactions, and it transfers funds into your checking account right after payments are processed. Keep in mind, merchant accounts usually come with higher fees for each transaction.

Why you need it: If your customers prefer paying with cards, you need a way to handle those payments seamlessly. Otherwise, you’ll miss out on potential business and revenue.

Money Market Accounts

These accounts are like a hybrid between a savings and checking account. You can earn better interest rates than a standard savings account with a merchant account, but still have some flexibility to make withdrawals or write checks since your money doesn’t get locked up. However, these accounts often come with higher minimum balance requirements, so you’ll want to keep a close eye on if that fits your goals.

Why you need it: If your business is sitting on a good chunk of cash and you want to grow it while still having access to your cash when you need it, this might be the right option for you.

Business Bank Account Requirements

Opening a business account isn’t quite as simple as opening a personal one. Banks need to make sure your business is legit, so they’ll ask to see some paperwork. Here’s what you can expect when opening your business bank account:

• Employer Identification Number (EIN): This is like a Social Security number, but for your business. It’s issued by the IRS and helps the government track your business for tax purposes. Some banks allow sole proprietors to use their Social Security number instead, but it’s good to have an EIN ready at account opening.
• Business Formation Documents: If your business is an LLC, corporation, or partnership, the bank will need to see proof. You’ll need to provide your Articles of Incorporation, a partnership agreement, or an LLC operating agreement. These documents show that your business is legally registered with the government.
• Government-Issued ID: Anyone who’s going to be signing on the account will need to show a valid ID.
• Operating Agreement or Bylaws: Some banks might ask for these if you’re opening an account for an LLC or corporation. These documents outline how your business is structured and who’s in charge of making the financial decisions.
• Business License: Depending on where you’re located and the nature of your business, you may need to show a valid business license.

Different Types of Business Bank Accounts

Beyond the basics of checking and savings, there are a few other types of business account options that could come in handy depending on your needs:

Certificates of Deposit (CDs)

If you have money that you don’t need to touch for a while, consider putting it into a CD. These accounts let you lock in a fixed interest rate for a set amount of time, typically ranging from a few months to a few years. The catch? You can’t withdraw the money until the CD matures without facing penalties.

Why you need it: CDs are a great way to earn higher interest rates on money you know you won’t need for a while.

Sweep Accounts

If your business is cash-heavy, sweep accounts can be a lifesaver. These accounts automatically transfer (or “sweep”) excess funds from your checking account into a higher interest-earning savings account or investment option at the end of the day. It’s a smart way to ensure you’re maximizing interest without lifting a finger.

Why you need it: It helps you make the most of your money by automatically moving idle funds to a place where they can earn more.

What Account Type Works for Businesses?

Choosing the right account mix depends on what your business does and where you want to take it. Here’s a quick breakdown of what might work best for different situations:

• For Daily Operations: A business checking account is a must. This is where all your incoming payments land and where you pay out expenses. No matter the size of your business, having a dedicated checking account helps keep things organized.
• For Short-Term Savings: A business savings account is a good place to keep money that you’re not spending right away but might need soon. You won’t get huge returns, but it’s better than leaving extra cash in your checking account.
• For Long-Term Savings: If you’re thinking further down the road, look into money market accounts or CDs. These accounts offer better interest rates and help you earn more on money that’s sitting around.

Bank Account Types Summary

Let’s recap the main types of business bank accounts and their uses:

• Business Checking Account: The go-to account for everyday expenses and transactions. You’d be smart to get one no matter what type of business you run.
• Business Savings Account: For stashing extra cash and earning a bit of interest while you’re at it.
• Subaccounts: If you like to keep things organized, consider creating sub-accounts under your main account for different expenses, like payroll or taxes.
• Money Market Account: Higher interest rates with some flexibility for check-writing and withdrawals.
• Merchant Account: Designed for businesses that need to process credit card payments regularly.

Frequently Asked Questions

What type of bank account is best for a business?

The best bank account truly depends on your needs. If you’re just starting, a business checking account is essential. It’s great for day-to-day transactions. If you want to stash away some cash for future expenses, a business savings account is a good move for you to consider.

Are there different types of business accounts?

There sure are. There are business checking accounts for a multitude of things. They have accounts for everyday transactions, business savings accounts for storing extra funds, merchant accounts if you’re processing credit card payments, and even money market accounts if you want to earn a bit of interest while keeping your money accessible.

What account type is good for business?

Generally, a business checking account is where it’s at. You’ll need it for paying bills, accepting payments, and separating your business and personal finances. No doubt the most important account for your business.

What kind of bank account is used by business owners?

Most business owners use business checking accounts for daily operations and might even have a savings account to set aside money for taxes or emergencies. If you deal with lots of credit card transactions, a merchant account would also be key to have.

This article was reviewed by our banking expert Tricia Jones.