Several options exist when selecting a checking account for your financial management. You can choose to open either a business or personal checking account. These kinds of accounts have their own advantages and disadvantages. Let’s explore this article about business Accounts and personal Checking in detail.
What Is a Business Checking Account?
Business checking accounts are intended for businesses, as the name implies. This is the account you need if you own a small business or work for yourself. Personal checking accounts lack some of the features and perks that business checking accounts offer, such as payroll integrations, employee debit cards, and streamlined credit card processing.
However, business checking accounts have disadvantages, like higher fees and minimum balance requirements. Before choosing a business checking account, compare and shop around for the best deal.
How a Business Checking Account Works
There are numerous parallels between a business checking account and a personal account. After you open the account and deposit some money, you can add more as your business makes profits.
In addition to being able to access the account via a debit card and checkbook, you should be able to log in and manage it online. (These days, both digital-first and traditional banks offer business bank accounts, and most have some form of virtual account management capability.) Checking and savings accounts are frequently included in business banking packages, allowing you to start building an emergency fund for unforeseen events.
However, as was already said, a business bank account could have certain extra features tailored to the firm’s needs. Compared to a personal checking account, it could also have higher fees and minimum account balance restrictions. On top of that, you should provide proof of your business’s existence.
What Is a Personal Checking Account?
Personal checking accounts are ideal for those who need basic banking features or don’t have a high volume of transactions. Compared to business accounts, they usually have fewer criteria and lower fees. They let you keep your money safe and use it to pay bills with a debit card, checkbook, or transfer services.
Remember that personal checking accounts have fewer features and smaller monthly limitations, among other disadvantages. However, they are a wise option if you are looking for a simple account with minimal costs.
What Are the Uses of Personal Checking Accounts?
- Common uses for personal checking accounts include:
- Keeping money received from jobs or other sources of income
- Making use of paper checks or transfer services to pay bills
- Transferring money to relatives, friends, and companies
- Using a debit card to make purchases at the point of sale
Business vs. Personal Checking: What’s the Difference?
Here are the differences between Business and Personal Checking:
1. Purpose and Use
Both types of accounts are secure for holding your money. Business accounts are designed for handling business expenses, while personal accounts are great for everyday personal costs.
2. Features
Business accounts come with useful features like payroll and bookkeeping tools. Personal accounts, on the other hand, are handy for sending money to friends and family.
3. Bundled Accounts
You’ll often find that business accounts include a business savings account, whereas personal accounts usually come with a personal savings account.
4. Requirements and Fees
Business accounts typically require a minimum deposit, a balance to maintain, and may have fees and paperwork. Personal accounts, however, are usually free and have simpler requirements.
5. Benefits
Business accounts help you track and record expenses for easy accounting. Personal accounts make managing bills and regular expenses straightforward.
Are Business Checking Accounts FDIC Insured?
Any business checking account worth its salt ought to be NCUA (National Credit Union Administration) or FDIC-insured, depending on whether it was opened and maintained at a credit union or a bank. If your bank fails, the FDIC, a federal organization, will cover lost money up to the $250,000 statutory insurance limit and safeguard deposit accounts, including checking accounts. (A few banks have taken part in initiatives that have increased the FDIC insurance limit to millions.) The NCUA provides similar protection for credit union members.
When Should You Open a Business Checking Account?
Whether you are a small business owner or a freelancer, opening a business checking account is a smart action to take, even if it is not legally required. When you separate the expenses of business and personal, you simplify the accounting process, minimize the amount of paperwork for tax returns, and show the IRS that you are a legitimate business entity.
Furthermore, if your business is an LLC, S corp, or any other type of company, separating your business and personal expenses can help protect your assets in case you are involved in a lawsuit. While it might not be legally necessary, many accountants and attorneys advise their clients to open a business bank account as a solution to this issue.
One benefit of having a business bank account is:
- Keep your personal and company expenses apart to safeguard your assets and simplify bookkeeping.
- Facilitate your tax reporting by centralizing all of your deductible costs.
- Make it easier to review your company’s cash flow so that you can adjust your business plan if needed or appraise the company for other purposes.
- Heighten the credibility of your company’s operations as per the IRS, potential customers, vendors, and other stakeholders who deal with your organization.
Can I Use the Same Bank Account for Both Personal and Business Banking?
Being able to use your personal checking account for your business is possible, but professionals generally advise against it. This is because it’s more complicated to distinguish expenses and claim deductions.
For example, the IRS recommends keeping personal and business bank accounts separate for record-keeping. Although it might be easy to forget as a new entrepreneur, be sure to include account expenses in your business’s initial costs. In the end, it’s worth it!
How to Choose the Right Business Checking Account?
Here are some points to keep in mind while choosing the right business checking account:
1. Fees
Many business accounts have costs attached, and even if you can get them waived, the requirements (such as the amount you have held in the account) are typically more stringent than those for personal accounts.
If you’re looking to open a business bank account, consider Cheqly as an excellent choice. There are no fees for account opening, no minimum balance requirements, and no monthly charges. For more information, visit our Pricing Page.
2. Cash deposit limits
Your bank may limit the maximum amount you can deposit into the account each billing cycle. If you exceed that amount, there can be a cash handling charge.
3. Transaction limits
There might be a cap on how many free transactions your business checking account can process in a billing month. If you exceed that sum, there can be a fee.
4. Interest
Certain business accounts allow you to earn interest based on the balance. However, do the arithmetic to see whether this should be the primary consideration when selecting a bank.
5. Bundled services
In addition to your checking account, your bank may provide you with free features like merchant services or a business credit card.
Keep Business and Personal Finances Separate
If you are in business or do freelance work, you should ensure that your business expenses are kept separate from personal expenses. A business bank account will help separate these finances, which means that the accounting and tax preparation processes are simplified, and you are covered in case of a lawsuit against your business.
Develop your business with Cheqly: Open a business banking account today!
Cheqly helps business owners reach their financial goals with key benefits. Manage your finances easily with detailed financial insights and integration with accounting software. Use the business debit card to improve cash flow and keep your funds safe with added security. Enjoy more cost-effective transactions with affordable online payments. These features save you time, cut costs, and drive business growth. Sign up for your Cheqly bank account today to start growing your business.