If you’re a freelancer, a small business owner, or self-employed, it’s a good idea to keep your personal finances and your business finances separate. Not only can this make it easier to analyze and manage your finances as a business owner, but it can also make it easier when filing your taxes and can help to limit your personal liability.
Some business bank accounts even offer additional perks, like high interest savings or sign-up bonuses. We’ll cover why you should consider a business bank account, how to open an account, and which business bank account you should choose.
What do you need to open a business bank account?
If you have a side hustle that makes a little extra cash, you may not feel the need for multiple bank accounts. But if you have a growing business or freelance operation, it can be helpful to open up a bank account specifically for your business income. This can make it easier to track income and expenses, streamline tax preparation, protect your personal assets, and more.
While a business bank account isn’t required in order to earn money as a freelancer or entrepreneur, it’s a good idea in most cases.
Types of business bank accounts
When referring to a business bank account, most people mean a business checking account. But there are actually several types of business bank accounts that may be suitable for your business, including checking accounts, savings accounts, CDs, and more. Some business bank accounts to consider include:
- Business checking account: Like a personal checking account, a business bank account it’s a good place to send, receive, and manage cash. It typically comes with a business debit card to access funds.
- Business savings account: If you’re trying to build up a financial safety net for your business, you may want to consider a business savings account. These accounts are a good place to store additional savings above and beyond the funds that cover everyday expenses.
- Business CD: A CD, or certificate of deposit, functions similarly to a savings account, with a few additional caveats. CDs earn interest over a specific term, but in order to claim that interest, you can’t withdraw funds from the CD during that period.
- Business merchant account: A business merchant account is an account that accepts card transactions. When a customer pays for an item or service using a debit card or credit card, the funds are deposited in a business merchant account.
- Online banking apps for business: Banking apps like Lili are not banks but provide bank services through partnerships with a bank. They are usually mobile only, but they also offer lower fees and minimum deposits than traditional brick-and-mortar banks.
How to open a business bank account
Opening a business checking account requires a few more steps than opening a personal bank account. These include:
1. Gather important documents
You’ll need to provide documents verifying information about yourself and your business, including your name, social security number, and ID. You’ll also need to provide your business address, and your Employer Identification Number (EIN) and business license if you have either.
You will be asked whether your business is a sole proprietorship, LLC, corporation, or partnership. If you haven’t registered your business as a particular business entity, your business is likely a sole proprietorship.
2. Decide on a business bank account
When deciding on a business bank account, there are a few factors that you should keep in mind. First and foremost, you should look for an account that charges few fees and allows you to hold onto as much of your hard-earned business income as possible.
If you already have a personal bank account with a bank that you like, you may want to consider opening up an account with the same institution. You may also want to look into banks and neobanks that offer checking accounts designed specifically for small business owners, freelancers, and entrepreneurs, as these accounts often come with tools, resources, and perks designed to help you grow your business.
3. Apply for an account
Once you decide on a business bank account that meets your needs, the next step is to apply for an account. Many banks allow you to open up a business bank account online, but some may require you to visit a bank branch in person. You’ll need to provide the information about yourself and your business discussed in step one.
4. Fund your account
Some business bank accounts require that you fund your account with a certain amount of money in order to open it. This may take the form of a deposit of a few hundred dollars. In some cases, new business bank account holders may even be able to earn a welcome bonus for funding their account.
5. Reroute payments
If you’ve previously been getting business and freelance payments sent to a personal bank account, it’s a good idea to reroute those payments to your business bank account as soon as you’ve set it up. This can help you to clearly delineate personal and business finances. Depending on the type of business you do, this may include changing your banking information with clients or in payment portals like PayPal.
6. Take advantage of additional features
Many business bank accounts come with handy additional features that can help you to better manage your business. These may include financial planning resources, accounting tools, free credit for common marketing tools, and more.
7. Consider other financial products
Once you’ve set up a business checking account, you may want to consider other financial products, such as a business savings account, business loan, or business credit card.
When should you open a business bank account?
Opening a business bank account may not be required, but it’s a good idea to do so as soon as you start earning money from a business or side hustle. This can help to separate your personal income from your business income from the start. For example, if you start a shop selling homemade goods on Etsy, it’s a good idea to open a separate business account to accept payments.
What are the benefits of a business bank account
Some of the benefits of a business bank account include:
- Protect your personal finances: By separating your personal and business finances, you’ll receive a limited amount of protection. You may also want to consider setting up an LLC or similar business entity to further protect your personal finances.
- Enhance your reputation: Using a business bank account may sometimes be seen as more professional than using a personal bank account. You can also get checks made out in your business name instead of your personal name.
- Simplify tax preparation: If you have multiple streams of income, such as W2 income and 1099-NECs from a side hustle, keeping a separate business bank account can help you to keep all of your business income in one place, which makes it easier to determine what taxes you owe. If you use your business bank account to fund all business expenses, it can also be a useful way to catalog potential deductions.
- Take advantage of additional resources: Many business bank accounts come with additional resources that can help your business grow, like discounted accounting and advertising programs.
The best business bank accounts
On the market for a business bank account? These accounts come with plenty of business-centric features and perks:
- Bank Novo: A simple, streamlined business checking account with few fees.
- Bluevine: A business checking account that earns interest.
- Chase: Good for established businesses and those with Chase credit cards.
- Bank Of America: Best for existing Bank of America customers.
- LendingClub: A business checking account that earns cash back.
- Axos: Good for businesses that need to make cash deposits.