Choosing a business bank account

Businesswoman choosing the bank and card services she wants

Business bank accounts are no longer only offered by high street banks. As banking has increasingly moved online, a whole new set of challenger banks and alternative services has emerged – and for many businesses, these new options can be a better bet.

Traditional small business bank accounts

High street banks and building societies are still the first place most businesses turn to for a bank account. Owners of small businesses will often look to the bank that holds their personal account.

There are advantages to using your existing bank:

  • Your personal banking record may make it easier to open a business account, or to establish your creditworthiness for any borrowing facilities you want.
  • The local branch can be a convenient place to make deposits or withdrawals, particularly if your business uses cash
  • It is easier to build a personal relationship with the small business relationship manager. For example, you might meet them at local networking events.
  • You can visit the branch if you want to have a face-to-face meeting.

The main argument against using your existing bank is that high street banks tend not to have the most competitively-priced accounts.

Challenger and alternative banks

The main alternative bank account providers are the new wave of digital 'challenger' banks. There are also smaller banks, sometimes specialising in a particular type of customer or product (for example, lending to the property sector or fixed-term savings) or aiming to provide ethical finance.

Challenger banks tend to be online-only. In some cases, they may be less convenient for businesses that use cash (or cheques). Some challengers have arrangements with other organisations to accept cash or cheque deposits, or allow cash withdrawals.

Challenger banks can offer several advantages:

  • Because they don’t have the costs of maintaining physical branches, challengers may offer lower costs and/or higher interest rates than high street banks.
  • Challenger banks tend to have well-designed, user-friendly websites and smartphone apps.
  • Some challengers have a reputation for superior, friendly customer service (but online only).

Relatively few challenger banks offer business accounts, though the number has been increasing. Well-known business account providers include Monzo and Starling.

Other new types of account providers, such as 'electronic money institutions' (EMIs), are not directly licensed as banks. This means they are not covered by the Financial Services Compensation Scheme, so money held with them is not protected in quite the same way.

Business bank account costs

Business bank accounts tend to have charges, though most providers offer new small business customers free banking for the first year or 18 months.

Costs can include:

  • a flat-rate, monthly account maintenance fee
  • monthly charges for additional account services – for example, if you also have a foreign currency account
  • charges for each deposit or withdrawal – charges for electronic transactions are generally lower than for cheques
  • additional charges for depositing or withdrawing cash, often as a percentage of the amount
  • higher charges for international transactions
  • a range of possible one-off charges – for example, for one-off enquiries or copies of bank statements

There will be separate charges for any borrowing, such as an overdraft facility.

If your business has high transaction volumes costs can mount up. There may also be an 'opportunity cost' from receiving zero or low interest on money held in the account, which could earn more elsewhere.

Foreign currency and international bank accounts

Costs can also be significant for international transactions. These extra costs can include:

  • the service fee for a foreign currency account (for example, in Euros or US dollars)
  • significantly higher transaction costs for international payments
  •  the costs of converting money between UK sterling and other currencies, including both explicit fees and the extra costs of being given a poor exchange rate

If you just need a foreign currency account for a small number of transactions, you may find that your main bank account offers a suitable service. If you make a significant number of transactions, you may want to look at the new generation of online multi-currency accounts such as Wise.

If you want to be able to arrange import or export finance at the same time, you may find it easier to deal with a bank that offers the services you need.

Comparing individual providers

Whichever type of bank account you want, there are likely to be several different providers available. Key questions to ask include:

  • Do they offer the services the business needs?
  • Is it possible to link the bank account with our accounting system?
  • How easy is it to use the bank account for routine transactions?
  • What will the total cost be for the transactions that the business is likely to make?
  • Does the provider have a good reputation for dealing with problems?

You may find it helpful to ask business contacts which accounts they use and how satisfied they are. You can also check comparison sites like Finder and MoneySuperMarket.

Bear in mind that you don’t necessarily need to consolidate all your financial services with one provider. For example, you might have:

  • a day-to-day account at your main bank account provider
  • a savings account offering a higher interest rate for spare cash at another bank
  • a specialist provider for international payments
  • separately negotiated borrowing facilities as required

Browse topics: Banking

What does the * mean?

If a link has a * this means it is an affiliate link. To find out more, see our FAQs.