Table of Contents
- What Is a Business Checking Account?
- How Does a Business Checking Account Work?
- What Is a Personal Checking Account?
- What Are Personal Checking Accounts Used For?
- Whatâs the Difference Between Business and Personal Checking?
- Are Business Checking Accounts FDIC-Insured?
- When Does Someone Need a Business Checking Account?
- Can I Use the Same Bank for Personal and Business Banking?
- Choosing the Right Business Checking Account
- Find a Business Checking Account That Fits Your Needs
- FAQ
While both business and personal checking accounts allow you to safely store money and utilize those funds to pay bills and expenses, a business checking account can be a good idea for most folks who work for themselves or for other enterprises. In fact, depending on the structure of your business, you may be legally obligated to open a business bank account vs. a personal checking account, which is geared for an individualâs daily financial needs.
Key Points
⢠Business accounts manage the flow of an enterpriseâs earnings and spending, while personal accounts cater to individual daily needs.
⢠Business accounts may provide payroll and bookkeeping integration, enhancing operational efficiency.
⢠Personal accounts often come without fees, whereas business accounts might incur charges for transactions.
⢠Business accounts may impose transaction and deposit limits, unlike many personal accounts.
⢠Separating business and personal finances can protect assets, simplify tax reporting, and enhance professional credibility.
What Is a Business Checking Account?
A business checking account is a checking account specifically designed for business owners. As such, they often include business-specific features, such as payroll or bookkeeping integrations, the ability to assign debit cards to employees, or simplified credit card payment processing.
In many other ways, however, a business checking account is similar to the personal checking account you likely already have. Itâs a safe place to stash cash and use it for regular, day-to-day expenses by way of writing checks, using a debit card, or initiating transfers. For example, it can allow you to:
• Pay suppliers
• Deposit payments from customers
• Pay employees
But itâs only to be used for business-related expenses.
How Does a Business Checking Account Work?
When thinking about a business checking account vs. a personal checking account, youâll find many similarities. You open the account, fund it with some money, and, hopefully, go on to deposit more cash as profits from your business roll in.
Youâll likely have access to the account via a debit card and/or a checkbook, and will likely also be able to log into the account and manage it online. (Both brick-and-mortar and online banks may offer business bank accounts these days, and most feature some kind of virtual account management option.) Business banking products often bundle both a checking and savings account, so you can start creating a cushion for a rainy day.
However, as mentioned above, a business bank account may come with some additional, business-specific features. It may also come with higher fees and minimum account balance requirements than a personal checking account, not to mention requiring documentation to prove you do, in fact, have a business.
Recommended: Guide to Business Checks vs Personal Checks
What Is a Personal Checking Account?
A personal checking account is a checking account used for personal expenses. Just like a business checking account, itâs a place where you can stash your cash with relatively few worries and use it to pay bills and expenses using a debit card, checkbook, or transfer services. Many banks also make it easy to bundle a personal checking account with a personal savings account, which is a great place to stash your emergency fund.
Unlike business checking accounts, though, a personal account wonât include business features. On the bright side, though, itâs very possible to find free personal checking accounts, which can help you save cash on those pesky monthly maintenance fees.
Increase your savings
with a limited-time APY boost.*
What Are Personal Checking Accounts Used For?
Personal checking accounts are commonly used for:
• Storing money earned through employment or other income streams
• Paying bills using transfer services or paper checks
• Making transfers to friends, family, and businesses
• Making point-of-sale purchases using a debit card
As their name suggests, personal checking accounts are designed to help you manage personal expenses and attend to your everyday money needs. Typically, a personal checking account is the hub of someoneâs daily financial life. (Itâs often paired with a savings account, which can allow you to earn interest and grow your money.)
Recommended: Guide to Budgeting Living Expenses
Whatâs the Difference Between Business and Personal Checking?
Hereâs a recap of the differences between business and personal checking accounts:
| Business Checking Accounts | Personal Checking Accounts |
|---|---|
| A place to safely store money and access it for regular business expenses | A place to safely store money and access it for day-to-day personal expenses |
| May come with additional business-friendly features, such as payroll and bookkeeping integration | Designed for personal use; may offer person-to-person transfers and other useful features |
| May come with a bundled business savings account | May come with a bundled personal savings account |
| Often come with minimum opening deposit or minimum monthly balance requirements and fees; youâll need to offer documentation proving you have a business | Many personal checking accounts are available for free |
| Helps entrepreneurs separate out their business expenses for ease of accounting and remaining compliant with regulations | Makes paying bills and other regular expenses more manageable, regardless of your source of income |
Are Business Checking Accounts FDIC-Insured?
Business checking accounts should be insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). The FDIC is a government agency that protects deposit accounts, such as checking accounts, and reimburses lost funds up to the $250,000 standard insurance amount in the event your bank fails. (Some banks participate in programs that extend the FDIC insurance to cover millions.) The NCUA is a similar agency, but specifically geared toward credit unions.
The FDIC and NCUA insure business and personal accounts alike, but itâs always important to double-check and make sure the bank or financial institution youâre hoping to open an account with explicitly states that deposits are insured.
When Does Someone Need a Business Checking Account?
If youâre a small business owner â or even a freelancer â a business checking account might be a good idea, even if itâs not technically required. Keeping your business and personal expenses separate can help make accounting easier, simplify your tax reporting process, and help make your business look more legitimate to the IRS.
In addition, if youâre incorporating (i.e., operating as LLC, S corp, or other type of business entity), separating your business expenses from your personal expenses can help protect your assets in the event you get sued. Even if itâs not legally required, many accountants and law professionals recommend their clients open a business bank account for this reason.
A business bank account can help you:
• Separate your business and personal expenses, which can both protect your assets and make bookkeeping easier
• Help make your tax reporting easier, as all of your deductible expenses will be in one place
• Make it easier to see your businessâs cash flow and make adjustments to your business model as needed, or value the business for other purposes
• Make your business look more legitimate to both the IRS and potential customers, vendors, and other parties you interact with professionally
Establishing a relationship with a bank could also allow you to more easily take out a small business loan or business line of credit in the future.
Can I Use the Same Bank for Personal and Business Banking?
In most cases, you are prohibited from using personal bank accounts for business purposes. This is typically noted in the account agreement. If itâs not prohibited, itâs still risky to mix account uses this way.
Case in point, the IRS explicitly recommends keeping separate business and personal bank accounts for record-keeping purposes. Itâs easy to let it go by the wayside if youâre just starting up as a small business owner or entrepreneur, but consider whatever expenses the account incurs as part of your business start-up costs. Itâs worth it in the long run.
Choosing the Right Business Checking Account
When you are shopping for a small business checking account, there are a few features that should be considered to help ensure that you find the right match. These include:
• Fees. Many business accounts have fees associated with them, and if you are able to get them waivered, the financial requirements (say, the amount you have held in the account) tend to be higher than for personal accounts.
• Cash deposit limits. Your bank may set a limit in terms of the amount of money you can put in the account per billing cycle. If you hit that amount, you may accrue a cash-handling fee.
• Transaction limits. Your business checking account may have a limit on the number of transactions they will handle for free per billing cycle. Go over that amount, and you may be charged.
• Interest. There are business accounts that offer interest on your balance. Do the math though to see if this should be a deciding factor in your choice of a bank. If fees are higher at the bank offering interest, you might wind up losing money in the long run.
• Bundled services. Your bank might offer some free features, like a business credit card or merchant services, along with your checking account.
Depending on the nature of your business and how you handle your banking, some of these factors may matter more than others. Find the bank that gives you the most features and perks you are seeking with the lowest fees possible.
Find a Business Checking Account That Fits Your Needs
To find a small business checking account that fits your needs, youâll want to compare accounts from different institutions to find the one that best aligns with your business’s financial needs and goals.
Consider factors such as monthly fees, transaction limits, and interest rates. Look for accounts that offer robust online banking features, mobile apps, and customer support. Finally, evaluate any additional services that may be important to you, like free wire transfers, business debit cards, or access to small business loans and business lines of credit.
The Takeaway
If you own your own business or earn freelance income, keeping your business expenses separate from your personal expenses can help simplify your life in many ways. A business bank account will help keep these finances differentiated, streamlining accounting and tax preparation, and protect you if you were to ever face business liability.
While SoFi doesnât currently offer business accounts, see what we offer for personal accounts.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, youâll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
What documents are required to open a business checking account?
In order to open a business checking account, youâll need your regular, basic documents â like your government-issued picture ID â as well as business-specific documents such as your EIN and business license. Check with the bank youâre considering directly for full details on which documents are required.
Can I open a business checking account without an LLC?
It depends on the financial institution, but yes, business accounts are available that donât require the business owner to be incorporated in any way.
Can I use a personal checking account for business?
Account holders are typically prohibited from using a personal checking account for business purposes. Check your account agreement for details. Even if this wasnât explicitly prohibited, it can cause confusion and issues, especially in terms of paying your taxes. Whatâs more, there are special business banking features you might get if you opt for a business-specific account, simplifying your life.
Are business checking accounts subject to different fees?
Yes, business checking accounts often have different fees compared to personal accounts. These can include monthly maintenance fees, transaction fees, wire transfer fees, and charges for additional services like business debit cards. It’s important to review the fee structure to find an account that aligns with your business’s financial activities and budget.
Why separate business banking from personal?
Separating business banking from personal accounts helps maintain clear financial records, simplifies tax filing, and protects personal assets from business liabilities. It also enhances professional credibility and makes it easier to manage cash flow, track expenses, and secure business loans or credit.
Photo credit: iStock/mapodile
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