How to Choose a Bank for Your Business
When establishing a business, it’s essential that you also open a bank account for that business. A business bank account makes you look more professional to customers, partners, and investors than your personal bank account. It also makes accounting and tax reporting easy during tax season.
When opening a business bank account, you want to go for a bank offering the services and features you need for your company. The bank you choose should make it easier to manage your financial transactions and run your business. This is why you need to take time to compare and select the right bank.
Selecting the Right Bank for Your Business
You may think all banks have the same features and serve the same purposes, to house your money and issue loans. While it’s true that banks exist to offer financial services, they vary in terms of size, accessibility, fees, interest rates, and customer service.
Here are the factors to consider when selecting a banking institution for your business:
Your Business Needs
Selecting the best banking institution for your company starts with identifying your current and future business needs. You want to choose a bank that will help you achieve your short-term and long-term goals. Every business has its unique banking needs. Some want access to small business loans and other funding opportunities. Others need a bank account for everyday business transactions.
With your needs in mind, you’ll be better positioned to find a bank offering features and services to help you achieve them. For example, if your business handles many cash transactions, pick a bank that makes it easy to deposit your cash at the end of your workdays.
Types of Banking Institutions
Another fundamental factor worth considering when shopping for a bank is its type. There are three distinct types, each with its advantages and disadvantages.
- Traditional Banks: Traditional banks are the most basic type of banking institution. They provide financial services through multiple brick-and-mortar branches and ATMs. Most offer online banking services, for example, mobile banking. They are considered traditional because they have been around longer than any other type. Traditional banks are ideal for business owners who don’t mind doing their banking in person. You’ll walk into a local bank branch to make a deposit, withdrawal, or check transfer. You can also utilize online banking services if they’re available.
- Credit Unions: Credit unions are similar to traditional banks but with a few differences. They are non-profit and member-owned. The members are the owners and users of the services offered by the union. Any profit made by the credit union gets returned to its members through high-interest rates or low fees. To open an account in a credit union, you first need to become a union member. Some credit unions require you to meet specific criteria to become a member, for example, work in various professions. Credit unions may not have many brick-and-mortar branches or offer ATM services.
- Online Banks: Online banks are the new kid on the block. They offer their financial services to customers online and have little to no physical branches. These banks are ideal for someone who doesn’t need to talk to a bank officer face-to-face. Everything happens online, from engaging with customer service to conducting wire transfers. Online banks offer the best interest rates and the lowest fees since they don’t have brick-and-mortar locations.
Go for the type in line with your desired banking experience. For example, an online bank would be more suitable if you don’t require in-person services. Alternatively, you can choose a traditional bank that offers online banking services. If you want a bank that gives back to the community and views its customers as members and owners, a credit union would be the best fit.
Types of Business Bank Accounts
When you visit any bank to open a business account, the first question they usually ask is which type of business bank account you want. There are five account types to choose from. Some banks offer better interest rates for some account types than others. This is why you should first determine your preferred account type, then pick a bank best equipped for that particular one.
Below are the five types of banks accounts that you can open in a financial institution:
- Business Checking Accounts
Checking accounts, also known as transactional accounts, have no limits on withdrawals and deposits. This account type is the most liquid, hence the best for everyday business transactions. Most businesses use a checking account to pay expenses and employees and perform electronic, ATM, wire, and check transactions.
When choosing a bank to open a business checking account, focus on accessibility. You want to go for a bank that makes it easy to deposit or withdraw money. Try a bank with a branch near you or one with ATMs and mobile banking services. This way, you can seamlessly deposit or withdraw your money.
- Business Savings Accounts
Savings accounts are designed to house money for future spending goals and needs. This account type is interest-bearing and comes with a withdrawal-frequency limit. Use a business savings account to store your business’s operating and net profit you don’t plan to use. You can hold the money for emergencies or specific future purposes, whether short or long-term.
When opening a business savings account, focus more on interest rates than accessibility. Some banks may limit the amounts of cash deposits, withdrawals, or transactions you make monthly.
- Business Money Market Accounts
Business money market accounts offer the benefits of checking and savings accounts. They are interest-bearing and have better withdrawal capabilities than a business savings account. However, money market accounts also have monthly withdrawal limits. This account type is suitable for passive investing and short or long-term saving.
- Business Certificates of Deposit
Certificates of deposit are interest-bearing accounts that earn interest on specific terms and for a defined period. This account type differs from savings and money market accounts in that the money deposited should remain as is for the entire period. You risk paying penalty fees or losing the accrued interest if you withdraw earlier than the specified terms. Certificates of deposit accounts are not ideal for covering business operation expenses.
Most banks offer a certificate of deposit accounts. However, each sets its CD terms, interest rates, and penalty fees. Your goal should be to select the one with high-interest rates and favorable terms.
- Merchant Accounts
A merchant account is essential if your business accepts credit and debit card payments. This account type acts like a holding account. When a customer pays you with their card, the funds go to your merchant account before getting transferred to your business bank account.
Merchant accounts may have a different fee structure from other bank account types. Learn the fees and costs associated with this account type before setting it up.
Features and Services Offered by the Banking Institution
Choose a bank with features and services essential to your business banking needs. For example, if ease of withdrawal matters, you want a bank that offers mobile banking or has easily accessible ATMs. If you need effortless access to small business loans, go for a bank that provides these services. Examples of features to assess when selecting a bank include:
- Online and mobile banking
- Local ATMs
- Bill payment services
- Payroll services
- Business loans and lines of credit options
- Debit and credit card access
- Low minimum balance requirements
- Cash-flow management services
- Account integration to accounting software
Banking Fees and Interest Rates
Each bank has its own fee and interest rate structure. You want to go for one that charges little to no fees and pays high interest on deposits. Some banks charge unnecessary fees that may run your account dry.
Below are the fees associated with having a business bank account. Keep in mind that they vary from one banking institution to another.
- Monthly charges: a monthly service fee to house your money
- Statement fees: a fee for requesting a bank statement
- Overdraft fees: payable when you withdraw more than the amount in your account
- Wire transfer fees: payable for conducting a domestic and international wire transfer from your account
- Stop payment fees: payable when you request your bank to cancel or halt a payment request
- Excessive transaction fees: payable when you surpass the monthly withdrawal limit for your account (appears mostly in business savings accounts)
- Closing fees: charges for closing your account with the bank
- Minimum account balance fees: payable when your account dips below the minimum account balance required by the bank
- ATM fees: payable when you make excessive withdrawals from your bank’s ATM or use one outside of your bank’s network
You want to choose a bank that makes it as easy as possible to access your funds. This factor is crucial if you want to open a business checking account. The bank should have a physical branch near you or offer online banking services. It shouldn’t be an inconvenience to deposit or withdraw money for business purposes.
The last thing you want is a bank that takes a long time to respond or is unhelpful whenever you have a query or problem. Ask friends and family or read customer reviews online to determine the bank’s reputation before settling for it.
Some questions to ask yourself when evaluating the bank’s customer service include:
- Is there a one-on-one relationship with the bank attendants?
- Can I access support 24/7?
- What is the turnaround time to get responses to queries?
- What are the bank’s hours of operation?
Look for Banking Security
You want to select a bank insured by the Federal Deposit Insurance Corporation (FDIC). In the case of credit unions, go for one insured by the National Credit Union Association (NCUA). If the financial institution goes bankrupt, you will receive compensation of up to $250,000.
As mentioned above, you want to choose a bank that empowers you to manage your business finances and transactions. A bank can do this by offering integration to expense tracking and accounting software such as QuickBooks, enabling you to consolidate your financials during the accounting season easily.
Most banks offer similar financial services. The difference lies in the benefits and features and fee and interest rate structure. No bank is created equal, so you should carefully shop for the one fitting your business needs. The nine tips above will help you pick the right one. It’s crucial to understand that if you aren’t happy with your current bank, you can always choose another.