Business savings accounts help your business get a return on capital which you do not have invested operationally.
What are business savings accounts?
Business savings accounts leave nothing to the imagination; they are simply savings accounts for businesses.
If you're running a business, and you happen to have reserves of capital you are not investing operationally, business bank accounts give you an opportunity to put your money to work and mitigate some of the effects of high inflation eroding its value.
Which types of business can have a savings account?
There are few restrictions on the types of businesses that can apply for a business bank account. Sole traders, partnerships, limited companies and even public limited companies are all equally eligible. However, if you are a sole trader, you should consider whether a business bank account will offer you the best possible return, since you can use personal savings accounts too.
What types of savings accounts are available to businesses?
Just like personal savings accounts, there are different types of business savings accounts available. Which is right for your business will depend on the amount of capital you have and your cash flow.
If your cash flow position is good, and you are rarely waiting for debtors to repay, you might comfortably be able to move your money to a higher interest long-term deposit account. Conversely, if you need your reserves to get by now and then, you'll need to ensure you have the freedom to withdraw quickly.
Easy access does not necessarily mean instant access, so even with this type of account, you'll need to manage your finances efficiently, to ensure that you allow sufficient time to move the money out of the account (this can be anywhere between 30 and 90 days in advance). However, easy access accounts do offer greater flexibility than fixed accounts, albeit you will forfeit some of the higher returns you might make for this flexibility.
As with personal savings, if you can leave your capital with an institution for an extended period of time, you will receive a better return. The minimum period most banks require a fixed term account is 6 months, but to achieve good returns, you may need to tie up your capital for two years.
Are businesses savings protected?
Just like personal savings accounts, business bank accounts (through FSCS protected banks and building societies) are protected in the UK by the FSCS protection scheme. However, this protection only extends to £85,000 per institution.
£85,000 might seem a sizeable sum for personal savers, but many businesses will have deposits of far greater value. If this is the case, you need to decide what your appetite for risk is. If you are risk-averse, you/your business may need to forgo some of the returns you might realise from the highest paying protected accounts, and split your capital, with a maximum of £85,000 being deposited with each institution.
As with personal accounts, peer to peer style investments (which offer claim to deliver very high returns) are not protected by the FSCS. This means, if they fail, you could lose your entire deposit.