Starting a business comes with its own set of challenges, and making the right financial decisions can be quite unnerving. Choosing the right business account is crucial to grow your business. With multiple options available, it’s essential to identify a business account that best suits your needs. In this guide, we have laid out the pros and cons of various business accounts tailored for small enterprises. Let’s explore these options so that you make the right and informed financial decision for your business.
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Business checking accounts:
A business checking account functions similarly to a personal checking account. It can be used to make purchases, pay bills, deposit, or withdraw money, just like a personal checking account. Business checking accounts are an important tool and a requirement for any business that wants to operate as a separate legal entity from its owner. Along with these features, a business checking account offers special features specifically tailored to your business needs.
Advantages:
- Debit cards for employees
- Free wire transfers
- Accepts both credit card and debit card payments.
- A few accounts also provide financial tools for creating invoices and financial reports, and tracking expenses
Disadvantages:
- Business checking accounts may require higher minimum balances to waive the maintenance fee.
- Business saving account:
If you want to store extra funds and allow them to grow in value, a business savings account is the thing for you. Having a business savings account can help your company set aside money for an emergency, future growth, or any unforeseen circumstances. It is a financial safety net for your business. Yes, at the beginning, it may seem like the right decision to prioritize savings over the growth of the company, but even a bit of saving can be very beneficial for the future. Let’s take a look at some of the advantages and disadvantages of a business savings account.
Advantages:
- Easy access to money in an emergency
- Strong hold on money expenditure
- Additional income in the form of interest
Disadvantages:
- Withdrawal penalty:
- Higher opening deposits are required
- Business certificate of deposits account:
A Certificate of deposit account permits your business to save money at a fixed interest for a fixed period of time. It earns higher interest than a savings account. The only difference is that you can’t access your money for this fixed period, which could vary from six months to several years. If you withdraw this money before the set period, you pay a penalty.
Advantage:
- Interest rates are higher than those of savings or money market accounts
- Guaranteed and predictable rate of return
- It can help you avoid spending temptations since withdrawing funds early triggers a penalty.
Disadvantage:
- Penalties for early withdrawing funds
- Typically garners less than stocks and bonds over some time
- If interest rates rise during the fixed term, it could cost you more
- The value of the locked-away money may fall due to inflation
- Business money market accounts:
A business money market account permits you to earn a competitive interest at a low risk. It is a blend of savings and checking accounts. You can transfer money into your business MMA via cash, cheque, incoming via transfer, and automated clearing house (ACH) transfer. Once the money is in your MMA business account, you can keep it to draw interest, use it, or transfer it to another account. It is a dependable way for business owners to earn money and idle cash. Let’s take a look at some of its pros and cons:
Advantage:
- Easy cash access
- Earns good interest
Disadvantage:
- A minimum balance may be an obstruction
- Foreign currency accounts:
Foreign currency accounts or multi-currency accounts allow you to hold both your domestic and foreign currencies. This account works similarly to a regular bank account. You can make payments, withdraw, or deposit cash but in more than one currency. You can start a foreign currency account in your home country and a financial institute in a foreign land. Let’s take a look at the advantages and disadvantages that foreign currencies have to offer.
Advantages
- Hold multiple currencies
- better conversion cost
- easier international transfer
- greater efficiency and convenient
Disadvantages
- A high minimum balance is required
- Lower interest rates
There are many types of business accounts out there, specifically tailor-made to cater to your business needs and growth. You need to know what is better suited for your business. Here are a few things to watch out for before you make a financial decision. You need to know the following about each type of business account before you decide which is better suited for your business
- Minimum opening balance required
- Mode of fund transfer
- Transaction limits
- Transaction fees
- Cash deposit fees
- Overdraft fees
- Wire transfer fees
- Foreign transfer fee
Assess all of these factors carefully and cross-check them with your business needs, ensuring they support your financial strategy. Choosing the right account will help you manage your funds effectively and efficiently and will lead to your growth.
