If you're a business owner, you want your money to be working as hard as you do. That's why finding the right business savings account will be essential, but you may be wondering how you can get more from your savings, and have probably got a lot of questions to go along with it. We attempt to answer some of them here.
The simplest way to answer this question would be to think of it in terms of a personal savings account, at which point the better question would be, "why wouldn't you want one?". The whole point of a savings account of any kind is to provide a financial buffer while gaining some interest in the process, and these factors are just as important in a business capacity as they are in a personal one.
For one thing, a business savings account can ensure you're prepared for any kind of crisis that may hit your company, whether it's late payment issues, losing a key member of staff and sales suffering as a result, or needing to replace the building's heating system (for example).
Having a valuable savings buffer could also help you budget for expenses you can plan for, and means you don't need to fall back on overdrafts or other expensive forms of credit should you face cashflow problems. Then, as touched on, is the chance to earn interest. Rates may not be that high at present, but anything is better than nothing, and you can at least be sure that your money is working as hard as possible.
Find out more about how to get the best returns on your savings
This depends on your business needs, but a good rule of thumb is probably to split your savings between easy access and fixed rate accounts. The benefit of locking your money away is that you'll get more interest, and generally speaking, the longer the term, the higher the rate.
This means you have the potential to get a substantial return from your surplus cash by the end of the term, but just bear in mind that fixed rate accounts typically won't allow access prior to maturity (and if they do, there could be a hefty penalty), so you'll need to be confident that you won't need access to your money for the duration of the deal.
This is why you'll want to keep at least a portion of your savings in a more accessible account, to ensure you can withdraw funds easily should you need them. These accounts will typically be variable rate, which means they could change at any time, but there are still some competitive deals available – particularly if you don't mind giving a bit of notice to access your funds.
Then there's the potential to lock your money away for only a very short period of time – this could still give you a better return than an easy access account, but you can be safe in the knowledge that you don't have to lose access for long. Some providers will offer fixed rate bonds with terms as short as three or six months, which could be the ideal compromise for some businesses.
If you run a limited company, the business is its own entity and is separate from your personal finances. As such, you can't put cash from that business into a personal savings account – and in doing so, into your own name – as it would likely trigger various tax implications. Therefore, you need a business savings account that's specifically for your business' funds.
The exception to this would be if you're a sole trader. In this case, you and your business are one and the same and you'd be able to save business cash in a personal account – the business is solely in your name and essentially all money you receive from that business is yours, though it could still be wise to have a separate account for any savings you want to keep for business purposes.
Looking for a personal savings account instead? Check out the best rates
For up-to-the-minute information, make sure to keep an eye on what business savings rates are available. You’ll be able to find everything from variable rate deals to fixed rate bonds, all designed with businesses in mind, so you can be sure you're doing the best you can for your business' savings.
You may have noticed that many of the best rates available are from lesser-known banks, but this shouldn't put you off. These challenger banks have the same financial protection as their better-known counterparts – small business savings of up to £85,000 are protected under the Financial Services Compensation Scheme, or in the case of some non-UK based banks, the EU equivalent – and they tend to pay higher rates, so it might be time to look beyond the high street for the best deals.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.