Business Savings Accounts
You can earn interest on your company's cash with a Business Savings Account. From instant access options, to fixed term accounts, there are numerous products available to help you manage your firm's money and make a great return.
|Quick Access Account||3.75%||Variable||£1|
Understanding Business Savings Accounts and Bonds
In business you have to make the most of all of your assets, not least of all your money. Whilst having more cash than you need in your current account may be a sign that your company is in good health, it's also wasteful. By moving funds that aren't required to meet your regular costs to a specialist business savings account you'll earn a considerably higher rate of interest.
When choosing a business savings account there are a number of factors you'll need to consider. As well as the rate of interest you'll earn on your money, you need to weigh up the flexibility being offered and think about how any restrictions placed on the account may affect the running of your business.
As with other banking products, such as high interest bonds or personal savings accounts, as a rule, the easier it is to get to your money the lower the rate of interest you'll receive, the more willing you are to leave your funds untouched in the hands of the bank, the higher the rate of interest they'll reward you with.
An instant access account will offer flexibility, but will come with a lower rate of interest compared with a notice account, where you have to give advanced warning, sometimes three or four months ahead of time, if you plan to withdraw. Fixed term business savings bonds will offer even higher rates of interest, provided you can afford to leave your money completely untouched for an extended period of time, usually between 1 and 3 years.
In many industries five minutes is a long time, let alone three years. Unless you are entirely confident that you can go without the cash, be wary of locking your money away, even if the rate of interest is tempting. If you do choose to put your money into a bond and then come to need it, you will likely have to pay an early withdrawal penalty or you maybe refused altogether. Indeed, you may have to wait out a lengthy period to even close such an account.
If you do go for an account that has a fixed term, you'll also need to consider how you'd prefer to be paid your interest. Whilst some accounts will give you the option of being paid monthly, or even daily, in many cases you'll only be paid on maturity i.e. once the full term has elapsed. The chances are that interest payments won't be a major factor in figuring out your company's cash flow, but having a regular income form your savings could make a difference.
Obviously, predicting whether or not you'll need to make a withdrawal is a difficult task and, just as it could be disastrous to be hit with an early withdrawal fee, it could be frustrating to miss out on the best rates. Some accounts allow you to compromise by giving you the option of making just one or two withdrawals during a fixed term, with a higher rate of interest than an instant access alternative.
If you're in a position to leave a large sum in your account, you can gain access to higher interest rates. Most instant access accounts will have lower minimum deposit requirements, whereas bonds with high interest rates may demand a larger initial investment. Again, as with any business decision, the key to choosing the best account for you will be balancing the gains on offer against the potential risk. Does it make sense for you to relinquish access to £50,000 or more of your money for a return in the region of 3%, or could you do better with the money in your own hands?
Again, knowing how much money you can afford to put away for any length of time is no easy task in the fast moving world of business. Some accounts have a lower basic minimum deposit, but if you can afford it, by depositing more you can bump up the rate of interest. This flexibility can be especially useful if the times ahead are looking uncertain.
Many accounts include a 'bonus' which hikes up the interest rate, but only for a set period of time. Of course, there's nothing wrong with taking advantage of such offers, as long as you're aware from the outset that the rate will eventually fall and take this account.
Generally, the bank or building society providing your account will automatically apply a rate of 20% tax to the interest you accrue. It will then be your responsibility to ensure that, when you come to pay your annual tax bill, you've not underpaid.
In the case of business savings accounts that are based offshore, interest will normally be paid gross i.e. before tax is deducted. This does not mean that the accounts are tax free by any means, but, in terms of rationalising your affairs, receiving payment this way can potentially be advantageous. To learn more about how an offshore business savings account could help to reduce your tax bill it's advisable that you talk to a qualified professional.
An eligible business will have the first £85,000 that they deposit under any one single licensed banking institution protected by the FSA's compensation scheme. This only applies to smaller businesses (less than 50 employees and an annual turnover lower than £6.5 million) and it's important to bear in mind that the £85,000 cap on compensation applies to all the brands of a licensed institution, so it may be wise to avoid using multiple products from brands working under the same license.
Make sure you give the terms and conditions a thorough going over before you sign up to an account. Some banks will charge you for making transactions in a certain way, via phone, online or using a cheque for instance. Depending on the nature of your business, the way a bank charges you for using the account could make a big difference to the fees you pay.
Some will charge a flat monthly rate for using the account, perhaps with added fees for performing over a certain number of transactions, whilst others will charge each and every time you make a transaction. You need to figure out which will be cheapest for you given the way you operate and factor such charges against the other considerations outlined above.
Finally, as well as requiring a minimum deposit, most business savings bonds also have an upper limit on how much you can pay in, usually somewhere between 1 and 5 million pounds. For sums in this region, you'll be better off looking at different investment vehicles.
Using UK Net Guides Business Savings Accounts
Using the comparison table at the top of the page you can, at a glance, compare the key features of some of the best accounts on the market. Here's a quick guide to understanding the information in the above comparison table;
- Provider: In this column you'll see the name of the organisation offering the account. Usually these are familiar names such as high street banks, but sometimes we feature less well known companies from the world of finance.
- Account: In this column you'll see the name of that account. This name will normally indicae the type of account in question i.e. 'fixed' or 'instant'.
- Interest (AER): This is the interest rate on offer. (AER stands for annual equivalent rate. iving you the rate in this way allows you to easily compare accounts whether they earn their interest daily, weekly, monthly or yearly.)
- Term: This column tells you how long it'll take for the account the reach maturity. As such, his column doesn't apply to instant access accounts.
- Minimum Deposit: In this column you can see exactly how much you are required to deposit.
- More Info: If you are interested in an account, simply click the 'more info' button to see the full details.