Business savings accounts

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There are many financial facets to running a business, with cash flow, payroll and materials offering just a few things to think about. In short, running a business can be challenging, which is why having a good current account can help operations run more efficiently. 

A business savings account, on the other hand, allows businesses to earn interest on capital reserves and can provide flexible access to other handy business tools, such as long-term investments with even better savings rates. 

Business savings accounts are very similar to personal savings accounts, and work in almost the same way. Clearly, if you want to open a business savings account, you need to be running a business.

What is a business savings account?

A business savings account is just like a personal savings account, but it’s only for businesses. This type of savings account typically offers more competitive rates of interest than a business current account. As with personal savings accounts, there are different types of business savings accounts, including the following:

  • Easy access accounts
  • Notice accounts
  • Fixed term accounts 

Business savings accounts don’t typically charge a monthly fee, unlike most business current accounts.

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Why open a business savings account?

Business savings accounts tend to offer more competitive interest rates than business current accounts, often earning you more on the extra cash you have in your business. 

Having a business savings account can help ensure you’re prepared for any kind of crisis that may hit your company, acting as an emergency fund for instances such as losing an employee, repairs and maintenance on the business premises or purchasing new tools and equipment. 

It’s important to consider how quickly you might need access to these funds, because this will determine what kind of business savings account you opt for. 

What types of business savings accounts are there?

As we mentioned above, there are several types of business savings accounts available, and each tends to provide a different level of access to your cash. This means that in some cases, you might have to wait or satisfy certain conditions if you need to access your money. 

For example, a fixed term business savings account offers a fixed interest rate for a set period of time, and you won’t typically be able to withdraw your money until that time has passed. An instant access business savings account typically allows you to withdraw cash when you need to, but you’ll probably be offered a less competitive interest rate.

Each different account can also stipulate its own opening criteria, such as a minimum opening deposit, which can vary between providers.

What should I consider when choosing a business savings account?

Before opening a business savings account, it’s important to consider how quickly you might need access to your money. If your cash flow is healthy and reliable, you could benefit by tying up surplus cash into fixed rate business bonds, which will pay you a higher rate of interest but restrict your access to your cash.

Alternatively, if you’d prefer to have access to your money whenever you like, then a business easy access account might be better for you.

If you’re somewhere between the two, a business notice account might offer a good middle ground. Business notice accounts tend to offer more competitive rates of interest than an instant access account, but you will need to give a set period of notice. Be sure to do your research though, as the notice period can range from anywhere between seven and 180 days.

Variable business savings accounts Fixed business savings accounts
Typically includes easy access and notice accounts. Work the same way as fixed rate bonds for personal savings.
Your interest rate can change at any time. Typically, the more restrictive and the longer the term, the more competitive the interest rate.
Certain types of variable business savings accounts have restrictions on when and how you can access your money. Businesses won’t be able to access their cash for an agreed term, but will benefit from a higher rate of interest.
Better for businesses who need to be flexible in terms of access to their cash.

Business savings accounts vs. personal savings accounts

If you own and operate a limited company, it exists as its own entity and money made by that business is separate from your own personal finances. This is why certain tax implications can arise if you were to transfer cash from that business into your personal savings account. 

The solution to this is to have a business savings account just for your business’ money. 

If you’re a sole trader, this doesn’t apply to you, because you and your business are the same entity. This means you can save the money you earn through your business in a personal savings account. It could still be wise, however, to have a business savings account acting as an emergency fund or for setting aside funds to pay your self-assessment tax return.

Compare personal savings accounts

Are business savings accounts protected by the FSCS?

If you’re a micro, small or medium-sized business banking with an institution that holds a UK banking license, your money will be protected under The Financial Services Compensation Scheme (FSCS) up to £85,000 per banking institution.  

However, there are some caveats to this. For example, financial organisations, public and local authorities are not protected. 

Do I need to do a tax return?
Do I need to do a tax return?

This guide is for the more than 10 million Brits completing self-assessment tax returns for HM Revenue and Customs (HMRC). Find out all about tax returns, who has to complete them and what happens if your tax return is late.

Read more

Advantages of business savings accounts

The main advantage of having a business saving account is the more competitive rate of interest they tend to offer, as opposed to letting your funds sit in a business current account without it working for the business itself. This ultimately means your money will work harder.

Some account providers also offer perks when signing up, including exceptionally high interest rates for a specified period of time.

How are business savings taxed?

Interest on business savings accounts is paid gross. This means you have to ensure any interest you’re paid is taxed appropriately. The amount of tax you’ll pay depends on what type of business you have and how much interest you earn.

For example, if you’re registered as a limited company, you’ll need to establish whether you’re liable for any corporation tax. As a sole trader, you can factor in your personal savings allowance.

Sole trader Limited company
If you’re a sole trader, you should use your personal tax allowance to calculate the amount of tax (if any) you need to pay on your savings. Limited companies must pay corporation tax on any profits you earn.
For the 2021/22 tax year (which runs to 6th April 2023), any interest you earn over £12,570 will be taxed at your personal income tax rate. Interest you earn on a business savings account should be included in your profit calculations.
You’ll need to state how much interest you’ve earned on your self-assessment tax return. The amount of tax you’ll need to pay is based on your year-end statement.

Am I eligible for a business savings account?

To be eligible for a business savings account, you’ll need:

  • To be UK based
  • All owners, directors and account users to be at least 18 years of age
  • To have an existing business current account

Keep in mind that the only way to transfer money into (and from) a business savings account is via a business current account. This may mean that you need to hold a business current account with the financial institution you’d like to open a business savings account with. Alternatively, you can nominate a current account when you open your business savings account, which won’t need to be held with the same provider. 

Some business savings accounts are only available to certain types of business. For example, there are business savings accounts that are only open to limited companies and not sole traders, or they may only be open to specific business sectors, such as charities.

How do I choose the best savings account for my business?

If you’re thinking of opening a new business savings account, it’s important to consider all options before you apply. Questions to ask yourself include:

  • Do I want a more competitive rate of interest or greater flexibility? Generally speaking, the more restrictions a savings account has, the more competitive the interest rate on offer. Although this does mean you won’t have instant access to your cash.
  • What type of access do I need? Different accounts and different providers vary in how you’ll be able to transact and manage your account. Methods include in branch, via post or online via a desktop or app. If online banking is a dealbreaker for you, ensure you can use it to manage your account before you commit.
  • Does the minimum balance suit me? You’ll usually need to deposit a minimum balance to open the account, which you’ll also need to maintain. You could incur charges if it falls below that amount. 


How do I open and access my business savings account?

Many business savings accounts can be opened and operated remotely, thanks to online banking. This allows you to access your account 24/7 from wherever you might be, which is often a great tool for businesses. 

However, if you’d prefer to have an in-branch relationship with your account provider, there are still some institutions that welcome in-person applications and management. 

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