Do businesses need savings accounts?

Opening a business savings account can be a smart way to set aside money that supports your company’s long-term growth. When used alongside your business checking account, it can be a financial tool that helps you access the funds you might need for unplanned expenses and emergencies.

Here’s what you need to know about business savings accounts to determine whether opening one is right for your organization. We’ll also delve into how to choose a business savings account that meets your business’s needs.

What you’ll learn:

• Business savings accounts offer benefits like the ability to earn interest, prepare for tax season and build an emergency fund to cover unexpected expenses.

• Before opening a business savings account, consider factors—like interest rates, minimum account balances, associated fees and other features—that matter to your business.

• How much you should keep in your business savings account may depend on the financial goals of your business, the size of your business, the industry you’re in, your cash-flow needs and more.

Whether you run a large or small business, a business savings account can offer an array of benefits. It can help your company grow its cash reserves, strategically manage money and stay prepared for the unexpected.

Here’s a closer look at some of the advantages that come with opening a business savings account:

One key difference between a business checking account and a business savings account is that savings accounts can earn interest on your company’s money. Some business savings accounts offer tiered interest rates, meaning the more your company saves, the more it earns. When researching options, considering the interest your company can earn through different types of accounts can be key to growing its cash reserves.

When you’re first starting out, you might use funds from your personal savings account to bootstrap your business and get your operations up and running. Once your business is established and generating revenue and positive cash flow, allocating some of your earnings into a dedicated business savings account can help you keep your business finances organized and professional, while also protecting your personal funds.

A business savings account can make it easier to set aside funds for taxes, including payroll taxes and other tax-related expenses. Plus, a business savings account can come in handy when you need to keep business expenses separate, making it easier to track potential tax deductions.

A business savings account can act as a financial safety net for your company. You can rest easy knowing that if equipment breaks down or you have an unexpectedly slow season, you’ve built an emergency fund of savings that can cover these costs and keep you afloat.

Setting aside money in a business savings account can help you build your company and reach its financial goals. You’ll have immediate access to cash if an opportunity to expand arises—helping you stay out of debt as you grow. Plus, you’ll be ahead of the game and ready to adapt to changes—like investing in new technology to streamline operations.

Before opening a business savings account, take some time to think about your company’s unique financial needs and goals. As you research, here are a few items to consider when opening an account:

There are a few types of business savings accounts to choose from, such as: 

• Standard or traditional savings accounts: Most banks offer this type of business savings account. A standard or traditional savings account typically comes with lower interest rates than other options, and it may have a lower minimum balance requirement too. 

• High-yield savings accounts: Offered by both traditional and online banks, a high-yield business savings account allows your company to earn a higher interest rate than it could with a standard savings account. Keep in mind: A high-yield savings account may require keeping a larger minimum balance and limit the number of monthly transactions.

• Certificates of deposit (CDs): A CD is a fixed-term savings account that typically offers higher interest rates, but you won’t be able to access funds for a set amount of time. A CD is good for long-term savings, but keep in mind that early withdrawals may come with penalty fees.

• Money market accounts: A money market account is a blend of a savings and checking account. Along with generally earning higher interest rates than a standard savings account, you may have the flexibility to access your funds by writing a check or using a debit card.

Interest rates can vary, depending on the financial institution and type of business savings account you choose. For example, online banks may offer higher interest rates than traditional banks. Look for an account with an interest rate that can help your business reach its savings goals.

Like interest rates, the fees associated with a business savings account can differ based on the bank and account type. You may face overdraft, maintenance, withdrawal or other types of fees. If your goal is to grow your business’s savings, look for an account with minimal fees—or better yet, no fees at all.

Some business savings accounts have minimum balance requirements. If your company’s revenue tends to fluctuate and you can’t always maintain that balance, you may face penalty fees.

Interest rates and associated fees are important factors when opening a business savings account. But you should also consider a financial institution’s reputation for excellent customer service. Ask yourself:

• Is it easy to contact the bank for support if an issue arises? 

• Are there local branches I can access if I prefer in-person service? 

• Can I handle all my banking online if I’d like?

• Does the bank offer rewards or specific benefits for business customers?

How much your business should sock away in a savings account can, once again, depend on its overall financial goals. Is your company saving for future expansion or technology upgrades? Or is the savings account only for emergencies so it can cover unexpected expenses without taking on debt?

There’s no one-size-fits-all savings number—it can depend on the size of your business, its cash flow and its industry. A good general rule is to save around 20% of your business’s income, or three to six months’ worth of cash needed to cover operating expenses like payroll, utilities and loan payments.

A business savings account is a simple but powerful tool that can help your company achieve its financial goals. Setting aside funds regularly can help you keep your business finances organized, build stability, prepare for the unexpected and support long-term growth.

Capital One offers unique banking solutions designed to meet your business’s needs. Explore Capital One business savings accounts, which offer exceptional benefits like a three-month guaranteed promotional annual percentage yield, fast and easy transfers, overdraft protection when you link a Capital One business checking account, 24/7 account access and more.