Choosing the best business bank deposit account

One of the first actions of many small businesses is to open a business current account. It’s absolutely essential you have one so your business can make and receive payments. However, many businesses don’t bother opening a business deposit account.

If you’re likely to have a significant amount of money sitting in your business current account on a regular basis, it’s probably worth your while opening a business deposit account. Deposit accounts pay far higher levels of interest, so will enable you to earn far more interest on your money.

Historically, it would have been easier to open a deposit account with the same bank that you hold your current account with. But with the advent of online banking, it’s now easy to quickly transfer money between accounts at different banks.

There are two main types of business deposit accounts; ‘instant access’ and ‘term deposit’. Instant access deposit accounts allow you to access your money instantly and without penalty, whereas with term accounts you can only access your money at the end of the ‘term’ of your deposit.

Instant access deposit accounts

An instant access deposit account, as the name suggests, allows you to access your money at any time without any penalty. This type of deposit account gives you most flexibility and means that you can immediately access your money without incurring any fees if there are some unforeseen circumstances.

Because you have immediate access to your funds, the rate of interest you earn on an instant access deposit account is lower than you would get with a term deposit account.

Term or Time deposit accounts

With term deposits, which are also sometimes referred to as time deposits, banks offer a fixed rate of interest for a fixed term. Many businesses opt for a term length of 1 month. If you’re happy to tie the money up for longer, say for 3 or 6 months you can opt for a longer term and you will be rewarded with a higher rate of interest. The flip-side, of course, is that you won’t be able to access your money until the end of the term.

The minimum deposit levels you need to qualify for a term account are usually higher than those for an instant access account. For example, Abbey have a minimum deposit requirement of £50,000 for all time deposit accounts.

Restricted access accounts

Some banks also now offer deposit accounts that allow you to access your cash instantly but limit the number of withdrawals that you can make without penalty. The rate of interest paid on these accounts tends to be a little higher than the interest rate you would receive on an instant access business deposit account.

The rate of interest these accounts pay tends to vary depending on the amount of money you have in the account and the number of withdrawals you make. The conditions you need to meet to achieve the highest rate of interest with some of these types of deposit accounts can be quite onerous so make sure you read the small print.

The best business deposit accounts available at present

If you’re looking to open a business deposit account, here are some of the best offers available at present;

Instant access business deposit account

Barclays have recently launched an Instant Access Saver account that currently pays interest at 3.71%. The minimum balance is just £1. To withdraw funds, you can make any number of transfers to a Barclays business current account free of charge. This gives you same day access to your money. If you want to withdraw money and transfer it to an account held with another bank, you are allowed two, free BACS payments every month.

If you already hold a business current account with Barclays, you can apply online and the account should be ready to use in days. You can find out the full details here.

Alliance & Leicester Commercial bank’s Business Instant Savings Account is currently paying 4.17% interest for balances of up to £50,000. It is an instant access deposit account that allows you to make up to 10 free automated withdrawals per month but extra withdrawals will cost you £2 per transaction.

If you have more than £50,000 in the account the interest rate increases to 4.90%, and if you have £250,000 in the account you’ll earn a superb 5.16% interest.

Bank of Scotland have just launched an Instant Access business deposit account that pays a market-leading rate of 5.38% on all balances from £1. You can find out more about the Total Business Account here.

Term deposit account

Most term deposit accounts require a minimum of £50,000, so aren’t realistically an option for most small businesses. Some banks do offer 30-day access accounts for lower balances.

For 30-day access to your money, you can earn 4.24% with Alliance & Leicester’s Business 30 day Notice Deposit Account but this is only for balances of between £10,000 and £50,000. Balances of less than £10,000 earn a paltry 0.2% interest but the you'll earn a higher interest rate of 4.96% on balances between £50,000 and £250,000. A balance of over £250,000 will earn you interest at 5.33%.

With Abbey’s Business Reserve Account you can currently earn 3.75% interest on balances from £10,000 to £99,999. Balances of up to £10,000 earn interest at 3.25%.

All account details and interest rates are correct at the time of writing but banks may make changes to these at any time.