What a business savings account does

A business savings account is a bank account where you deposit money your business earns, and the bank pays you interest on that balance. The interest rate varies by bank and account type — some accounts pay 4% or 5% annually right now, others pay less than 1%. You can deposit money whenever you want, withdraw it whenever you want (though some accounts limit how many withdrawals per month), and the bank holds the money safely while paying you to keep it there.

The core trade-off is simple: you give up immediate access to some of your cash in exchange for interest payments. A checking account typically pays zero interest. A savings account pays interest but may charge a fee if your balance drops below a minimum, or limit your withdrawals to a certain number per month.

Business savings accounts are separate from personal savings accounts. Banks treat them differently for tax purposes, and the account holder must be registered as a business — a sole proprietorship, LLC, S-corp, C-corp, or partnership. You'll need an Employer Identification Number (EIN) or your Social Security Number if you're a sole proprietor.

Key Takeaways

  • A business savings account pays interest on your balance, with rates ranging from under 1% to 5% or higher depending on the bank and current market conditions.
  • You can deposit and withdraw money at any time, though some accounts limit withdrawals to six per month or charge fees for excess withdrawals.
  • Interest is calculated daily or monthly and deposited into your account, and you report it as income on your business tax return.
  • Most banks require a minimum opening deposit (often $100 to $500) and some charge monthly fees if your balance falls below a set amount.
  • Online banks typically offer higher interest rates than brick-and-mortar banks because they have lower overhead costs.

How interest gets calculated and paid

Banks calculate interest in one of two ways: daily balance or monthly balance. With daily balance, the bank looks at how much money you had in the account each day, adds those amounts up, divides by the number of days in the month, and pays interest on that average. With monthly balance, they just look at what you had at the end of the month. Daily balance is more common and usually pays slightly more interest because it rewards you for money you deposit mid-month.

The interest rate itself is called the Annual Percentage Yield (APY). If an account advertises 4.50% APY, that means if you kept $10,000 in the account for a full year without touching it, you'd earn $450. But rates change. Banks raise and lower their rates based on what the Federal Reserve does with interest rates. When the Fed raises rates, banks usually raise what they pay on savings accounts within days or weeks. When the Fed cuts rates, banks cut their rates too — sometimes immediately, sometimes after a delay.

Interest deposits happen monthly or daily depending on the bank. Some banks deposit interest on the first of the month, others on the last day of the month, others continuously. Check your account statement or the bank's website to see when your interest posts. You'll see it as a deposit line item in your transaction history.

Minimum balances and monthly fees

Most business savings accounts require a minimum opening deposit to open the account — typically $100 to $500, though some banks ask for $1,000 or $2,500. This is the amount you have to put in on day one. After that, many accounts also have a minimum daily balance requirement. If your balance drops below that threshold on any day of the month, the bank charges a monthly fee — usually $5 to $15.

Some accounts waive the monthly fee if you maintain a certain balance, make a certain number of deposits, or keep a linked checking account at the same bank. Read the fee schedule before you open an account. A bank advertising 4.50% APY but charging a $10 monthly fee is actually paying you less than a bank advertising 3.75% with no fees, because the fee eats into your interest earnings.

Online banks often have lower or no minimum balance requirements because they don't have branch overhead. Traditional brick-and-mortar banks are more likely to charge fees and require higher minimums. If you're starting out and don't have much cash to set aside, an online bank may be the better choice.

Withdrawal limits and how they work

Federal banking rules used to limit savings account withdrawals to six per month, but that rule was suspended in 2020 and has not been reinstated. However, individual banks can still impose their own withdrawal limits. Some banks allow unlimited withdrawals. Others cap you at six, ten, or twenty per month. Withdrawals beyond the limit may trigger a fee ($5 to $10 per excess withdrawal) or the bank may refuse the withdrawal entirely.

The limit typically applies to transfers out — moving money to another account, whether at the same bank or a different one. It usually does not apply to ATM withdrawals or in-person withdrawals at a branch. Check your bank's withdrawal policy before you open an account, especially if you plan to move money in and out frequently.

If you need to withdraw money often, a business checking account may be a better fit than a savings account. Checking accounts have no withdrawal limits but typically pay zero interest. Many businesses keep both: a checking account for regular spending and a savings account for money they want to set aside and earn interest on.

How to open a business savings account

You'll need to provide the bank with your business name, the type of business structure (sole proprietorship, LLC, etc.), your EIN or Social Security Number, and personal identification. If you're a sole proprietor, the bank may use your Social Security Number as your business tax ID. If you're an LLC or corporation, you'll need an EIN, which you can get free from the IRS website.

Most banks let you open an account online. You'll upload a photo of your ID, provide your business information, and make your opening deposit by electronic transfer or debit card. The account usually opens within one to three business days. Some banks still require you to visit a branch in person, especially if you're opening a business account with a large opening deposit or if the bank has concerns about fraud.

After you open the account, the bank will send you a debit card, checks (if you request them), and online banking login credentials. You can start depositing money immediately through mobile check deposit, electronic transfer, or in-person deposit at a branch or ATM.

Comparing rates across banks

Interest rates on business savings accounts vary widely. As of late 2024, online banks were offering rates between 4% and 5.35% APY, while traditional banks were offering 0.01% to 1.5%. The difference is real money: on a $50,000 balance, the difference between 4.5% and 0.5% is $2,000 per year.

To compare rates, visit the websites of several banks and look for their business savings account rates. Most banks list APY prominently on their product pages. Pay attention to whether the rate is promotional (good for a limited time) or standard (ongoing). Some banks offer a higher rate for the first three months, then drop it to a lower rate. Read the fine print.

Don't choose a bank based on rate alone. Consider the minimum balance requirement, monthly fees, withdrawal limits, and whether you need a physical branch nearby. If you travel frequently or need to deposit cash often, a bank with many ATMs or branches may be worth a slightly lower interest rate. If you rarely need to visit a branch, an online bank with a higher rate is usually the better choice.

Reporting interest on your tax return

Interest earned in a business savings account is taxable income. At the end of each year, your bank will send you a Form 1099-INT showing how much interest you earned. You report this amount on your business tax return — on Schedule C if you're a sole proprietor, on the corporate return if you're a C-corp, or on your personal return if you're an LLC or S-corp that files as a pass-through entity.

Keep your bank statements and the 1099-INT form for your records. The IRS may ask to see them if you're audited. If you earned more than $10 in interest during the year, the bank is required to send you a 1099-INT. If you earned less, the bank may not send one, but you still have to report the interest on your return.

Interest income is separate from business income. If your business earned $100,000 in revenue and your savings account earned $2,000 in interest, you report both amounts, but they go on different lines of your tax return. Talk to a tax professional if you're unsure where to report the interest.

Frequently Asked Questions

Can I use a personal savings account for my business?

Legally, yes — the bank cannot stop you. But it's not recommended. Mixing personal and business money makes tax reporting harder and can create liability issues if your business is sued. If you're an LLC or corporation, a personal account also doesn't protect your personal assets the way a business account does. Open a business account even if it costs a little more.

What happens if the bank fails?

Your deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per account. If the bank fails, the FDIC pays you back. Business accounts are insured separately from personal accounts, so if you have both at the same bank, each is covered up to $250,000. If you have more than $250,000 to save, split it across multiple banks or look into money market accounts or certificates of deposit at different institutions.

Can I earn more interest elsewhere?

Money market accounts sometimes pay slightly higher rates than savings accounts, but they may require a higher minimum balance and limit your withdrawals. Certificates of deposit (CDs) pay higher rates but lock your money up for a set period — three months, six months, one year, or longer. If you need access to your money, a savings account is more flexible. If you can lock money away for six months or a year, a CD might pay more interest.

Do I need a separate business checking account too?

If you're a sole proprietor, you can legally use a personal checking account for business. But if you're an LLC or corporation, most banks require a business account. Even as a sole proprietor, a business checking account makes accounting easier because all business transactions are in one place. Many businesses use both: a checking account for daily expenses and a savings account for money set aside for taxes or emergencies.

What if I need to withdraw money before the month ends?

You can withdraw money anytime, subject to your bank's withdrawal limits. If you hit the limit, you may be charged a fee or the withdrawal may be declined. If you need frequent access to your money, choose a bank with no withdrawal limits or consider a checking account instead. Some banks let you link your savings and checking accounts so you can transfer money between them without counting against your withdrawal limit.