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.
Business deposit accounts pay far higher levels of interest than current accounts
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 business internet 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 are 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.
Restricted access deposit 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
With UK interest rates at historical lows, the rates currently on offer to business deposit accounts are not great. Some banks are offering as little as 0.1% on instant access business deposit accounts, however there are a couple of much better instant access accounts available.
At present, the best interest rate for an instant access business deposit account from the High Street banks is from Santander’s Business Direct Saver account which pays 1.00% gross on all balances above £10,000. If you have less than £10,000 in the account the interest rate is 0.25%
Restricted access deposit accounts
You can enjoy higher rates of interest on your spare cash if you don’t need to access it frequently. Santander have recently launched a ‘Business Reward Saver’ account, which pays up to 2% AER gross, if you don’t make any withdrawals in the first 12 months. You have instant access to your money by internet, phone and ATMs, but get a lower rate if you make a withdrawal in that month.
To qualify for this account, your business must have a turnover of less than £1 million, and the minimum deposit to qualify for the 2.00% rate of interest is £30,000. If you have less than £30,000 the interest rate falls to just 0.1%. To get full up to date details of the Business Reward Saver’ account call Santander on 0800 345 7798.
Term deposit account
Most term deposit accounts require a minimum of £50,000, so aren’t realistically an option for most small businesses.
The market leading term deposit account is Santander’s Loyalty 1 Year Business Tracker Bond which pays an impressive 2.75% AER gross. It is a tracker product, so the interest rate will track the Bank of England Base Rate. However, in the unlikely event of base rates falling, the bond will continue to pay a minimum of 2.75% if you can leave the money untouched for 12 months.
To qualify for the Loyalty 1 Year Business Tracker Bond your business current account must be with Santander.
All account details and interest rates are correct at the time of writing but banks may make changes to these at any time.