Every business should consider having a savings account as well as a checking account. In some cases it might be a good idea to have more than one savings account, especially if your business is one that receives grants or special funding.
Business savings accounts are similar to personal savings accounts with a few differences. There are often several kinds of savings from which to choose. Most types of savings accounts allow instant access meaning you can withdraw your funds as you wish. I have noticed that most banks and credit unions do have a limit on how many withdrawals you are allowed to make each month. Some savings accounts require a 30 day notice before withdrawing funds. Some banks require that you keep larger amounts of money in business savings to avoid monthly fees. One bank I checked required personal savings to have a balance of $25 but the business savings was $1250 in order to avoid fees.
Here are some reasons why your business should have a savings account:
- Sinking Funds: Just like a regular person, businesses have bills that are due on a yearly basis. Perhaps the business leases equipment on a yearly basis. And they probably have to pay property taxes and several types of business insurance. In most cases, you can save money if you pay annually instead of monthly or quarterly. While the money is sitting there building up to be paid you can earn a few dollars on the side.
- Grant Disbursement: Perhaps your company has received a special grant. Often these grants come with a list of rules and regulations, most usually they want to know how the money was spent. Sometimes not, but if yes, placing the money in a savings account and moving the funds over as needed ensures that the money is there waiting when the time comes to spend it.
- Improvements: If you own your building you will need to maintain it. Roofs have to be replaced or repaired, air conditioners and heaters break down, paint wears out. And then there are the internal things that you have to keep up with and replace on a regular basis like computers, smart phones, telephone systems and other electronics.
- Repair, maintenance and replacement of vehicles: If your business has vehicles there are all sorts of things that can go wrong. If you need to replace a vehicle you can save your company hundreds of dollars in interest if the vehicle is bought outright with cash instead of leasing or applying for a loan.
- Protection of Your Money: If your company still uses paper checks there is a risk of those checks being forged or stolen. If all your money is in your checking account, it could be at risk. If your excess funds are in savings there is less risk of having the account drained.
- Safety Cushion: Just like a person or family, businesses can and almost certainly will experience hard times where there is a shortage of income. If every penny is spent every month the business is at risk of failing. Sure a business can get credit cards and go into debt but ideally a business strives to stay out of debt just like the rest of us.
Earlier I mentioned money coming in as a grant. This is probably less likely to happen to a commercial or for profit business, but it is common for non-profit businesses. Many times the grantor (person giving the money) requires that the money be spent in a specific way, within a specific time period. Separate savings accounts will make it infinitely easier to keep that money separate, and to keep track of the items that are purchased using the money.
My husband and I have several checking and savings accounts, both business and personal. We currently have Mr. A’s business accounts with a local credit union but we have been looking around to see if free business banking is available because we would like to avoid the monthly fees which we have been incurring through the credit union. We found one bank that fits our needs but there are no local branches. We would have to drive 30 miles one way to the nearest branch so for the meantime we are staying put at the credit union.