What Is a Business Savings Account: Types and Their Benefits

As a UK business, setting money aside isn’t always easy.

Balancing unexpected costs while also putting money aside for future development can be difficult to manage. This is where a business savings account can make a real difference.

Business savings accounts can help you build an emergency reserve, plan for future investments, or simply work towards long-term financial goals.

And although prioritising savings as a business can be challenging, even a small fund can go a long way in supporting your future growth.

In this guide, we’ll look at what a business savings account is, the different types of accounts available, their benefits, and how to choose the right one for your business.

 

What is a Business Savings Account?

A business savings account is designed specifically for businesses to earn interest on their savings.

Unlike a business current account, which is used for daily transactions, a business savings account allows businesses to set aside money for the long term, whether for unexpected expenses or future investments.

This is not to be confused with a personal account either, where the key difference is that interest is paid to the business rather than the individual.

With these basics in mind, the next step would be to decide on the type of account. In preparation, you would need to consider your long-term business goals and how often you would need to access your money.

Types of business savings accounts

There are several types of business savings accounts to choose from, each designed to meet specific financial goals and how often you need to access your funds.

Here are the main types of business savings accounts:
 

Instant access accounts

An instant access account allows any funds inserted into the account to be withdrawn at any time.

Common features:

• Instant access to money when required: You can access your funds at any given time. This is great for businesses who need an emergency cash fund or surplus cash readily available.
• Flexible for unexpected expenses: Businesses can access their pool of savings when unexpected costs arise.

Disadvantages:

• Offer lower interest rates: As a trade-off for easy access to funds, they typically offer lower rates than other types of business savings accounts.

 

Fixed-term accounts

A fixed term account allows businesses to lock in money for a set period with a fixed interest rate. Banks and building societies often offer fixed rates for 1, 2 or 5 years.

Common features:

• Higher interest rates: Fixed term accounts often offer higher interest rates due to the fixed period.
• More predictable: Fixed rates offer consistent returns, helping businesses forecast how much they’ll earn during the fixed term.

Disadvantages:

• Limited access to funds: Your money is locked away for an agreed term, and can’t be accessed as easily as other account types.
• Penalty for early withdrawals: If you try to withdraw your funds before the end of term, this may result in a withdrawal penalty.

 

Notice accounts

A notice account requires you to give the bank advance notice before you can withdraw funds. The notice period is often between 30 and 90 days, depending on the account you open.

Common features:

• Higher interest than easy-access: Notice accounts often offer higher interest rates than easy-access, while offering some flexibility to access your funds within the term.
• Planned access to funds: If businesses know they will need money before a set date, they can schedule a withdrawal within the notice period, helping them to manage cash flow better.

Disadvantages:

• Funds are not instantly accessible: As you require to give the bank notice, you can’t withdraw your funds instantly.
• Penalty for early withdrawals: You may face a penalty if you try to withdraw from a notice account before your notice period ends.

 

How to choose the right business savings account

Choosing the right business savings account for your business is a vital factor in achieving your savings goals.

To make an informed decision, here are some of the key steps to follow:

 

1. Decide how accessible you want your funds to be

If your business expenses tend to fluctuate and you need flexible access to your money, then an easy access saver could be a suitable option.

If you’ve got surplus funds, want to reap higher interest rates and do not expect to need instant access to your money then, notice and fixed accounts could be a better option for you.

 

2. Compare interest rates

Interest rates play a huge role in determining how much your savings will grow over time. The higher your interest rate, the quicker your savings will grow.

When deciding on the account, review the interest rate and how often the interest is paid.

You can use our savings calculator to see how different interest and deposit amounts can impact your overall return.

 

3. Check minimum balance requirements

Some business savings accounts require a minimum deposit or balance to earn interest.

Review the terms and conditions and make sure your business has enough funds to open the account and keep it running.

 

4. Review the fees and charges

Look at the account terms and see there are fees to open the account or operate it. As well as opening fees, some banks or building societies may charge fees for transactions above a certain limit.

For e.g. A bank may charge a transaction fee for every £100 deposited. Make sure to check the terms and conditions carefully, asl these fees can impact your final return.

 

5. Confirm eligibility criteria

Some banks have eligibility criteria for businesses to open an account. This can include financial factors such as annual revenue for large businesses, or a cash flow forecast for startups.

Some providers will only offer accounts to incorporated businesses, while others have more flexible eligibility criteria. Your business must also registered as a corporate body in the UK.

It is important to review the terms and conditions of the account carefully and make sure your business is eligible to make an application.

 

6. Review the bank’s services and support

Look at the service and support a bank or building society can offer and see if it supports your business needs.

Here are some common features you may find:

• Online and mobile banking: You can manage your account online or through a mobile app. This often allows you to make deposits, manage payments and view statements at your fingertips.
• Face-to-face: Banks and building societies often offer face-to-face support at their branches, where you can speak directly with staff or business specialists.
• Customer support availability: You can access customer support via phone, email, or live chat, and often have a dedicated business line within business hours.
• Alerts and notification systems: The accounts will let you set up alerts for withdrawals, direct debits, or other account activity to stay informed. 

Some of these features can influence your decision about which account is right for your business.

At Dudley, we help businesses choose the right business savings account for their needs. You can pop into our local branch to speak to our specialist team, or access our help and support to find out how to get in touch.

Benefits of a Business Savings Account
 

Earn interest on savings

Opening a business savings account allows you to earn interest on your business savings, which otherwise might be sat idly in your current account.

Once your account has been opened, depending on the type of account, you can put money aside at any given opportunity, and earn interest on surplus funds.

Supports business growth

Earning interest on your business savings can help build funds that could be later reinvested in expansion, new equipment or other long-term business growth.

It also allows you to plan for seasonal demands or fluctuations, where the interest earned could cover business expenses when needed.
 

Low-risk investment

Business savings accounts can be a low-risk investment option for businesses and provide a safety net for your money. They have little to no fluctuation, and you don’t lose the money you put in

However, it’s important to note there is an inflation risk, as savings may remain stable but might not keep pace with current price increases.

Improve cash flow management

Separating savings into an account away from money used for day-to-day expenses, helps manage your cash flow efficiently.

By setting aside your funds into your savings account, you reduce the risk of accidentally spending the funds on meant for your business’s long-term growth and it can be a helpful tool for budgeting

Promote healthy saving habits

Having a savings account in place for your business helps encourage saving discipline, makes you more financially responsible with the money your business saves.

Whether you choose set up a direct-debit or standing order or simply make a plan to pay in to your account at a set time and date, regular saving can help to you to plan for the future. This helps you focus on a financial goal and address any financial challenges the business might experience.

If you build your savings effectively, it will also make you less reliant on loans or credit, and lay the foundations to make your business more financially independent business.
 

Disadvantages of business savings accounts
 

Less access to funds

With options like fixed term and notice accounts, your business’s surplus funds are less accessible than they would be in a current account.

However, accounts providing easy access to your money might not offer as good rates or overall return.

 

Interest rates can fluctuate or be low

If you’re on a variable rate, the amount of interest you earn can fluctuate which can massively affect your long-term savings goals.

On the other hand whilst fixed rate accounts can provide certainty of return over a period of time, you may find that you cannot take advantage of interest rate rises as they occur.

Many businesses do choose a fixed-term rate for this very reason. However, this could backfire on a business if the variable rate rises above the rate on the fixed term.

 

Minimum balances and possible fees

To open a business savings account, many banks require an initial deposit for the account to be opened.

Depending on the initial fee, this could be difficult for small businesses, which can’t afford a big fee upfront.

As well as a minimum balance, some banks or building societies may charge for deposits made overseas in foreign currency. For example, a self-employed expat worker who earns in foreign currency, may face a charge if they deposit that money in their business account.

It is important your business reviews the terms and conditions of the account, before making the application.

 

Limited transaction capabilities

Some banks or building societies limit the number of withdrawals you can make from your business savings account over certain time periods.

If you exceed the permitted number of withdrawals, they may reduce your interest rate, charge a fee.
 

Final thoughts

A business savings account can be a brilliant way to manage your business’s cash flow, helping you set aside funds for emergencies, investments and long-term growth.

We understand that choosing the right account can be difficult. Whether it is a fixed-term, easy-access or notice account, it is important that your decision prioritises security and flexibility for your business.

At Dudley, our Business Savings Hub helps businesses choose the right savings account from our range of options.

Our specialist team can discuss your business goals and guide you towards the best solution for your needs.

To speak to our specialist team, you can call us, send an enquiry through our enquiry form or reach out to us via email.