Choosing the best business bank deposit account

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 online business 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’re 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. For example, Abbey have a minimum deposit requirement of £50,000 for all time deposit accounts.

Restricted access 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 Abbey, who currently have a ‘Business Reserve Limited Edition (Issue 2)’ account offering 1.25% on all balances above £10,000. If you have less than £10,000 in the account the interest rate is 0.5%

You can make up to 5 withdrawals per month, and an added benefit of this business deposit account is that, as well as making electronic withdrawals, you can request to have a cheque book which allows you to easily draw money directly from the account.

This business deposit account is a ‘limited edition’ account so it won’t be around forever and it could be withdrawn at any time. To find out more, or to open a ‘Business Reserve Limited Edition (Issue 2)’ account call Abbey on 0800 085 3099.

The next best rate on an instant access deposit account is from Bank of Scotland who currently offer the Bank of England base rate (1%). Again, the interest rate can change at any time so for up to date rates call them on 0845 850 1726.

Term deposit account

Most term deposit accounts require a minimum of £50,000, so aren’t realistically an option for most small businesses.

However, if you do have £50,000 that you don’t need access to for some time, Bank of Scotland has a Guaranteed Fixed Deposit Account that allows you to choose terms of 1, 3, 6 or 12 months. The interest rates for the different terms are, 1.2%. 1.88%. 1.95% and 2%. But remember you will not be able to access your money until the end of the term.

All account details and interest rates are correct at the time of writing but banks may make changes to these at any time.