Choose the right business bank account and work out the real monthly cost

After you’ve chosen how you want to trade and a good name for your new enterprise, setting up a business bank account is likely to be the next thing on your ‘getting started’ list.

There are lots of things to consider, including:

• Do you have to set up a separate bank account for your business?
• Even if you don’t have to, there are plenty of good reasons to separate your business and personal transactions.
• What do you need from a business bank account? In-branch contact? Online-only? There are loads of choices.
• There are alternatives to the traditional high street names.
• What do different banks offer their clients, and how much do they charge monthly?

This concise guide provides practical tips for setting up the right business bank account and calculating the real monthly cost.

Do you have to set up a separate bank account for your business?

This depends mainly on how you trade. Are you a limited company, sole trader or member of a partnership?

Broadly speaking (you can read more here), you must set up a separate bank account for a limited company (or LLP) as it has a separate legal identity from its directors.

If you’re self-employed (a sole trader or partnership), you are not legally obliged to set up a business account. Still, there are some powerful reasons why it is a good idea to separate your business and personal transactions.

Good reasons to open a business bank account – even if you don’t have to

If you’re a sole trader, it might be tempting to simply trade via your personal current account. But there are lots of good reasons why this might not work out long-term.

Check your existing bank’s terms and conditions

If you look at your current account terms and conditions, you might be excluded from using your account for business transactions. So, even if you wanted to, your bank won’t like it and may ask you to set up a business account.

Keep your personal and business records separate

When it comes to keeping accurate accounting records, and compiling your end-of-year (self assessment) accounts, it will be far easier if all of your business transactions are in one place – not mixed up with personal transactions.

Easy connectivity with your accounting software

Most small businesses use accounting software these days. Software like FreeAgent and Xero can communicate directly with your bank accounts, but again, you ideally need to keep your business transactions separate.

Keeping a professional image

Using a dedicated business account presents a more professional image to clients, suppliers, and partners. It also makes managing payments, receipts, and other financial interactions easier.

Credit and loan applications:

If you want to apply for business credit, loans, or mortgages in the future, having a separate business account can strengthen your application. Lenders often prefer to see a clear distinction between personal and business finances.

What does your business need from a business bank account?

Here is a reasonably detailed list of factors you need to look at when you compare banks:

• Fees and Charges:
  • Monthly account fees
  • Transaction fees (e.g., payments, deposits, withdrawals)
  • Charges for foreign transactions
  • Overdraft and loan interest rates
• Transaction Limits:
  • Daily or monthly transaction limits
  • Limits on cash deposits and withdrawals
• Account Features:
  • Online and mobile banking access (essential for most small firms)
  • Integration with accounting software, e.g. FreeAgent and Xero (a must these days)
  • Availability of business debit and credit cards
  • Multi-currency accounts for international business
• Customer Service:
  • Access to dedicated business support (do you need a point of contact?)
  • Quality of customer service (e.g., availability, responsiveness)
  • Availability of local branches (a dwindling number in the UK)
• Ease of Account Opening:
  • What do you need to open the account (e.g. ID requirements)
  • Speed and simplicity of the application process (some banks can open an account in minutes)
  • Online or in-person options (depending on how complex your banking needs are)
• Interest Rates:
  • Interest on credit balances (usually zero on current accounts, but plenty of options for business saver accounts)
  • Overdraft interest rates and terms
• Banking Network and Accessibility:
  • Branch network and ATM availability (some newer banks use Post Office branches for deposits)
  • Online and app accessibility (how easy is the app to use?)
  • Availability of banking services outside of business hours (online)
• Perks and Incentives:
  • Introductory offers (e.g., free banking periods, cashback – e.g. Tide’s £50 offer – see below)
  • Discounts on business services (e.g., accounting software, insurance)
  • Access to other resources and networking opportunities
• Integration with Other Financial Services:
  • Compatibility with payment services (e.g., PayPal, Stripe)
  • Access to business loans, credit lines, and investment services
  • Additional financial products like insurance and savings accounts
• Reputation and Reviews:
  • What is the bank’s reputation within the small business world?
  • Reviews and ratings from other businesses
  • Awards or recognition for business banking – outside of the banking industry
• Regulation and Security:
  • Bank’s compliance with UK regulations (e.g., FSCS protection up to £85,000 is essential)
  • Security features for online transactions (essential)

There are alternatives to the traditional high street names

Don’t automatically go to your personal bank to set up a business account; while they may have served you well as an individual, they might not meet the specific demands of your business. They might also be expensive.

New business owners understandably gravitate towards familiar high street names when opening a business account.

Still, it’s worth exploring the new wave of challenger banks that have transformed the small business banking landscape over the past decade. Some of the biggest names in this new wave include Tide, Zempler, Starling, and Mettle.

These innovative online banks are specifically designed for start-ups and small business owners. They offer smart features and flexibility that traditional banks may not provide. Many of them don’t change a monthly fee at all.

How much do banks charge each month (in reality)?

Bank charges vary significantly between banks, although competition has been strong – since the emergence of the challengers.

From our experience, most banks charge between zero and £10 per month for a standard business current account.

However, you need to make sure how much they charge for transactions. Some charge a monthly fee with no transaction fees; others are ‘free’, but you have to pay 20p or so per transaction.

So, make sure you compare the actual monthly cost of your business bank account based on how much you’ll use it.

Similarly, if you open a new business account with an initial period of free banking, find out what tariff you will be switched on to once the free period has expired.

The effect of charges can be significant if you expect many transactions to go through your account each month.

Open an interest-bearing savings account if you have spare funds

Now that the Bank of England base rate is far from its decade-long lows, you can earn reasonable interest rates if you open a business savings account. Be aware though – most banks won’t pay you a penny of interest on your business current account.

If you have VAT or Corporation Tax to pay in the future, make sure you earn some interest before your payment deadline!

Also, read this handy guide to keeping your bank charges low.

Up to £150 cashback when you open a free Tide business bank account

An amazing special offer for Bytestart users – simply open a new Tide account, either as your primary or secondary business account, and get up to £150 cash back, plus free transfers for a year! Find out more here.