Types of Business Bank Accounts

As a business owner, having the right type of business bank account is essential for separating finances, simplifying recordkeeping and managing cash flow. Choosing the right mix of business bank accounts depends on how your business handles money and plans for growth.  

Let’s explore the main business bank account types, how they work and what each is best suited for. From handling daily transactions to supporting savings and making payments, we’ll illustrate how each account can be used to support your business.  

Why your business needs a bank account

Businesses need separate bank accounts for compliance, professionalism and financial tracking. A business bank account can help protect your personal assets by separating business finances from your personal finances.

Separating your finances also simplifies bookkeeping and can make filing taxes easier. Using a business bank account helps you avoid scouring your personal bank account to identify business-associated transactions. Additionally, a business bank account can make identifying tax deductions for specific business expenses easier.  

If you need financing in the future, you may have an easier time securing a loan at the bank you have a business bank account with as they are able to verify your cash flow and financial health for loan approval.  

Overall, opening a business bank account is a good first step for handling your business finances.  

Main types of business bank accounts

From a business checking account to a merchant services account, there are a variety of account types to consider. Let’s delve into each type and discuss the benefits for business owners.  

Business checking account

A business checking account is the core account for everyday transactions, such as deposits, withdrawals, payments and payroll. A business checking account is designed for business owners who want to separate their personal finances from their business finances.   

This type of account supports checks, debit card transactions and electronic transfers between accounts.  

Business savings account

A business savings account is used to set aside money for future expenses or taxes while earning interest. Savings accounts pay interest to help you build reserves or manage short- or long-term goals. Think of this account as a piggy bank you use to hold funds until you’re ready to use them for a major business purchase or expense.  

Business money market account

A business money market account is a hybrid between a checking account and a savings account. These interest-bearing accounts typically have variable interest that is compounded daily and paid monthly.  

Depending on the bank, money market accounts might allow you to write checks, use a debit card and access ATMs, but transactions are typically limited.  

Business certificate of deposit (CD account)

A business certificate of deposit or CD account is a fixed-term savings product that earns higher interest in exchange for locking in funds for a set period of time.  

A CD account allows businesses to earn interest at a fixed rate on a specific amount of money for a certain term. You earn guaranteed interest by keeping your money in the account for the entire term. Interest is either paid monthly or at maturity. At the end of the term, you will have the originally deposited amount plus the interest earned.  

An early withdrawal penalty will likely apply if you withdraw your funds before the end of the term, so this type of bank account is ideal for businesses with predictable cash flow or long-term financial goals. 

Merchant services account

A merchant services account allows a business to accept credit or debit payments from customers. Merchant services accounts also provide purchase protection to customers and keep their data secure.  When opening a merchant services account, consider the discount rate, transaction fees, Automated Clearing House (ACH) daily batch fees and monthly minimum fees.

How to choose the right business bank accounts

Choosing the right business bank accounts helps your business operate smoothly, manage cash flows and keep clean financial records. There are many types of business bank accounts available, so knowing what to look for is essential. 

If you’re not sure which one to choose, you might think about the following factors: 

• Transaction volume and cash flow needs: The number of transactions you will regularly make can help you determine what type of account you need. For instance, a business checking account is typically the best for managing payroll and making payments to vendors. 
• Access to interest-bearing features: Consider the account’s access to interest-bearing features as well as its rates and terms. Some accounts offer opportunities to earn more interest than others, which can be helpful in reaching short- and long-term savings goals.   
• Fees and minimum balance requirements: Different banks and account types come with various fees and minimum balance requirements. Consider your business’s cash flow needs to help ensure you can maintain the minimum required balance. 
• Integration with merchant or payroll services: Some accounts can be easily integrated with merchant or payroll services to streamline these processes. Evaluate whether integration is a priority for your business when choosing accounts.  

Benefits of having multiple business accounts

Businesses often don’t have just one account and can benefit from using a mix of several. For instance, a business might have a checking account for operations, a savings account for building reserves and a CD for long-term funds. Finding the right balance of account types can help your business manage money effectively.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.