Yes, businesses have savings accounts, but they work differently from personal ones
A business savings account is a bank account held in the name of your business rather than your personal name. It functions like a personal savings account—you deposit money, earn interest, and withdraw when you need to—but it's legally separate from your personal finances. The account belongs to the business entity itself, whether that's a sole proprietorship, partnership, LLC, S-corp, or C-corp.
The key difference is that business savings accounts are designed to hold company money, not personal money. Banks treat them differently for tax purposes, and the IRS expects you to keep business and personal money separate. Mixing them can create problems during tax time and may affect liability protection if you operate as an LLC or corporation.
Most banks offer business savings accounts to any business with a tax ID number. Some banks require a minimum deposit to open, which ranges from $0 to $500 depending on the institution. Interest rates on business savings accounts tend to be lower than rates on money market accounts or CDs, but higher than checking accounts at the same bank.
Key Takeaways
- A business savings account is held in your business's name and is legally separate from your personal bank accounts.
- You need an Employer Identification Number (EIN) or tax ID to open a business savings account, even if you're a sole proprietor.
- Business savings accounts earn interest but typically at lower rates than money market accounts or certificates of deposit.
- Keeping business and personal money separate protects your liability protection and makes tax filing and accounting much simpler.
- Most banks charge monthly maintenance fees on business savings accounts, though some waive fees if you maintain a minimum balance.
What you need to open a business savings account
To open a business savings account, you'll need to provide the bank with documentation that proves your business exists. For a sole proprietorship, this might be as simple as your Social Security number and a business license. For an LLC, partnership, or corporation, you'll need your Employer Identification Number (EIN), which you can get free from the IRS.
Most banks also ask for a copy of your business formation documents—articles of incorporation for a corporation, articles of organization for an LLC, or a partnership agreement. Some banks want to see a business license or DBA (doing business as) certificate. Bring a government-issued ID to verify your identity as the business owner or authorized representative.
A few banks may ask for proof of business activity, such as invoices, tax returns, or a business plan, especially if your business is brand new. Call ahead to ask what the specific bank requires before you visit, because requirements vary widely between institutions.
How business savings accounts differ from personal savings accounts
The most important difference is legal separation. Money in a business savings account belongs to the business, not to you personally. If your business is sued or goes into debt, creditors can go after the business account but not your personal savings (assuming you maintain the separation). This liability protection is one reason the IRS expects you to keep the accounts separate.
Business savings accounts also come with different tax treatment. Interest earned on a business savings account is taxable income to the business, not to you personally. You'll report it on your business tax return, not your personal return. This is different from a personal savings account, where you report interest on your individual return.
Fees are typically higher on business accounts. Most banks charge a monthly maintenance fee ranging from $5 to $25, though some waive the fee if you maintain a minimum balance. Personal savings accounts often have no monthly fee. Interest rates on business savings accounts are also usually lower than rates on personal money market accounts at the same bank.
When a business should use a savings account versus other options
A business savings account makes sense when you need to set aside money for short-term goals—emergency reserves, quarterly tax payments, or upcoming equipment purchases. The money stays accessible, and you earn some interest while you wait to use it.
If you have a larger amount of money that you won't need for several months or longer, a business money market account or certificate of deposit (CD) may pay higher interest. Money market accounts offer check-writing privileges and higher rates than savings accounts. CDs lock your money away for a set term but pay the highest rates.
A business checking account is separate from a savings account and is designed for frequent transactions—paying bills, making payroll, and depositing revenue. Most businesses maintain both a checking account for daily operations and a savings account for reserves. Some business owners use the savings account as a holding place before transferring money to a CD or investment account.
How interest works on business savings accounts
Interest on a business savings account accrues based on the balance you maintain and the rate the bank offers. Rates vary by bank and change frequently. Currently, rates range from near 0% at some large national banks to 4% or higher at online banks and credit unions, though these figures change regularly.
Interest is usually compounded daily or monthly, meaning you earn interest on your interest. A bank calculates your interest based on your average daily balance or your ending daily balance, depending on the bank's method. The interest is deposited into your account monthly or quarterly.
The interest you earn is taxable income to your business. At the end of the year, the bank sends you a 1099-INT form showing how much interest you earned. You report this on your business tax return as income.
Fees and minimum balance requirements
Most banks charge a monthly maintenance fee on business savings accounts, typically between $5 and $25. Some banks waive the fee if you maintain a minimum balance, which might be $500, $1,000, $2,500, or higher depending on the bank. A few online banks offer business savings accounts with no monthly fee and no minimum balance.
Beyond the monthly fee, watch for other charges: overdraft fees if you accidentally withdraw more than your balance, fees for excessive withdrawals (some banks limit free withdrawals per month), and fees for closing the account early if you opened a promotional rate account. Read the fee schedule before you open an account.
Minimum opening deposits vary. Some banks require $0 to open; others require $25, $100, or $500. Online banks typically have lower or no minimum opening deposits than brick-and-mortar banks.
How to choose between banks for a business savings account
Compare interest rates first, but understand that the difference between a 0.5% rate and a 4% rate matters more on larger balances. If you're keeping $5,000 in the account, the difference is about $175 per year. If you're keeping $50,000, it's about $1,750 per year.
Next, look at monthly fees and minimum balance requirements. A bank offering 4% interest but charging $20 per month may cost you money if your balance is small. An online bank with 3.5% interest and no fees might be better for a small business.
Consider whether you want to bank online only or need a physical branch. Online banks typically offer higher rates and lower fees but no in-person service. Credit unions often offer competitive rates and may have lower fees than national banks, though you must be a member to open an account.
Frequently Asked Questions
Can I use my personal savings account for my business?
Legally, you can deposit business money into a personal account, but the IRS and your bank both discourage it. Mixing personal and business money makes accounting harder, complicates tax filing, and can jeopardize liability protection if you operate as an LLC or corporation. Most banks' terms of service prohibit using personal accounts for business purposes.
Do I need an EIN to open a business savings account?
It depends on your business structure. Sole proprietors can use their Social Security number, though many banks prefer an EIN. Partnerships, LLCs, and corporations must have an EIN. You can get an EIN free from the IRS online or by phone in minutes.
What happens to my business savings account if my business closes?
The account remains open until you close it. You can withdraw the remaining balance and close the account yourself. If the business owes money to creditors, they may pursue claims against the account balance. Consult a tax professional or accountant about how to handle the account during business closure.
Can I earn interest on a business checking account?
Some banks offer interest-bearing business checking accounts, but the rates are very low—often 0.01% or less. A business savings account or money market account will earn significantly more interest. Most businesses keep a checking account for transactions and a separate savings account for reserves.
Are business savings accounts FDIC insured?
Yes, business savings accounts at FDIC-insured banks are covered up to $250,000 per account. If you have more than $250,000, the excess is not insured. Some business owners open multiple accounts at different banks to stay within the insurance limit.