Even if you run a one- or two-person business, having a business checking account is beneficial. Not only does it separate your business finances from your personal finances, you'll find it easier to deal with taxes and day-to-day bookkeeping. Furthermore, if your business is ever the target of legal action, co-mingled personal and business finances could make your personal assets liable. But how can a small startup find the best checking account for its (usually limited) budget? Is there really such a thing as a free business checking account?
Free business checking accounts do exist, though you may have to search a bit to find them. While these accounts do not charge a monthly maintenance fee, they do impose charges for excess cash deposits, excess transactions, and overdrafts, so read the terms carefully before committing to a business checking account.
Differences Between Business and Personal Checking Accounts
Fee structures on business checking accounts differ from those on personal accounts.
- Both have overdraft and chargeback fees, but business checking accounts incur fees for making too many monthly transactions or too many cash deposits.
- Business checking accounts have limits on the number of free transactions each month, and the amount of cash that can be deposited for free. Bear in mind that businesses tend to require more transactions and cash deposits per month than individuals do.
Some banks only offer free business checking accounts for certain types of businesses; nonprofit organizations, for example. Also, most business checking accounts do not earn interest, and those that do earn very low rates.
Different Types of Business Checking Accounts
Nonprofits and sole proprietorships are more likely to be eligible for free business checking accounts that earn interest. However, these accounts may be subject to low transaction limits, and current interest rates are very low.
Transactions are defined slightly differently from bank to bank, but usually, "transactions" include:
- Teller deposits
- ATM deposits
- ACH items (electronic crediting or debiting of your account)
- Checks paid
Once the number of free transactions per month is exceeded, you can expect to pay anywhere from 15 cents to 75 cents per subsequent transaction that month.
Banks limit cash deposits because it is more labor-intensive to process cash transactions than electronic transactions. Once you exceed your monthly cash deposit limit, you will generally be assessed fees of around 0.2% on further cash deposits that month.
What to Consider When Shopping for a Free Business Checking Account
If your business primarily deals in cash (restaurants, clubs, or admission-charging venues, for example) look for a free business checking account with higher cash deposit limits. All business owners should take into consideration typical transaction requirements and cash deposit needs.
Many business owners find great deals on business checking accounts -- as well as faster credit card processing -- if they open their checking account with the same bank that handles their business credit card. See if the bank that issues your business credit card has any special offers for business checking accounts.
Good Bets: Credit Unions and Hometown Banks
You might think that economies of scale would cause big banks to offer the best deals on business checking accounts, but this is not always the case. It is worth your time to check out accounts offered by local, smaller banks and credit unions. Credit unions generally offer lower fees and are friendly to small businesses. Furthermore, credit unions generally don't have cash deposit limits, which is great for businesses that make a lot of cash deposits.
If you obtained a small business loan from a particular bank or credit union, ask about business checking accounts offered there. In some cases, fees are waived if combined account balances for your outstanding loan balance and checking account exceed a certain amount.
A study by NerdWallet.com of 130 business checking accounts found that 39% of business checking accounts offered by credit unions either had no monthly fees or had waived fee requirements. The study found that only 13% of similar checking accounts with banks had waived requirements or had no fees.
Free business checking accounts exist, but expect to work to find them. Don't ignore credit unions and local banks, and consider how many transactions you make per month -- and how much of your business is cash-based -- to determine how likely you are to exceed limits and be charged penalty fees.
In some cases, you might do better with an account that includes a flat monthly fee.
Photo Credit: The Consumerist