How to Choose the Bank That's Right for You
Opening a business bank account sounds a simple enough exercise. In fact, most banks welcome any entrepreneur who approaches them.
Business banking is not something to take lightly, however. Choose the wrong bank, and the frustration – and costs – can soon mount up.
What’s on Offer?The temptation for many people is to keep things simple and open a business account with the bank that deals with their personal finance. Indeed, this bank may provide the best options for an entrepreneur’s business. As with any product or service, though, it’s best to shop around.
In particular, a small business needs a financial institution to understand its needs. Entrepreneurs should therefore check whether a bank has a small business team, and if so, what services it offers.
Among the other services provided by a bank may be introductory rates for new business banking accounts. There may not be a special offer advertised, but an entrepreneur should still ask for a deal, even if it’s limited to a set period.
Entrepreneurs should also assess a bank’s facilities. Some require a local branch where they can deposit cash regularly; arrange for payments to employees, contractors, and suppliers; set up and cancel direct debits, and negotiate finance face-to-face. Others want a bank they use only for BACS deposits and withdrawals, and for holding money in a savings account pending annual payments of tax.
The Type of AccountBusiness bank accounts don’t just come in the form of current and savings accounts. There are actually six general types available.
- The current account is the most suitable for daily withdrawals and payments. These accounts have cheque books and debit cards, and pay interest.
- An instant access deposit account pays a higher rate of interest than a current account. Instant access means that money is available from the account at any time.
- An ordinary or long-term deposit account normally beats the interest rate of an instant access account. There are conditions, however, that affect withdrawal amounts and time frames.
- An entrepreneur who receives regular payments from abroad may need a foreign currency account. If such payments are occasional, however, it can prove cheaper to pay them into a current account.
- A merchant account is necessary for accepting debit and credit card transactions.
- An entrepreneur who uses a bank as a source of finance and obtains a loan for a business will need a loan account.
Online BankingAll of the above accounts come with an option for online banking. This means that an entrepreneur can view the state of a business’s finances at any time; transfer money from one account to another; make payments; and review historical account details.
Some banks also offer business banking services that are exclusive to the Internet. With these accounts, an entrepreneur doesn’t have the facilities of a local branch. Not everyone needs these, of course, in which case exclusive online banking is a cost-effective alternative that can offer reduced charges and higher interest rates.
Bank ChargesSome banks offer fixed fee services; some charge per transaction; others offer free banking up to certain limits. It’s important for the financial health of any business to establish what such arrangements are from the outset. To do so, an entrepreneur must read the terms and conditions, and ask questions about any point that’s unclear.
There are also ways to keep the level of charges down. An entrepreneur should use automatic transactions such as BACS and direct debits wherever possible; avoid becoming overdrawn, especially if this is unauthorised; and limit cash payments into the bank. It also does no harm to ask for a higher interest rate and lower fees from time to time.
Banking expenses, after all, are like any other overhead. To be efficient, and for the sake of a business, an entrepreneur must keep the cost of them as low as possible.