By Nic Redfern, Finance Director, www.knowyourmoney.co.uk
When it comes to choosing a bank account for your business, it can be easy to feel lost with all the options on offer. Not only are there the established “big four” high-street banking brands, but there is also an increasing number of “challenger banks”, including online-only providers.
Confronted with this choice, a business might be tempted to stick with a trusted, well-known brand or choose the bank with the most appealing introductory offer, but this is not necessarily the best way to find an account that will suit your business in the long term.
Businesses should determine which bank account services they use the most and if they have any special requirements, for example if they regularly deal with international currency. Knowing exactly how you use your bank account, and also thinking about how the needs of your business will change over time, would put you in a better position to effectively compare your options.
It is also necessary to consider the size of your business, as the needs of a sole trader will differ from an SME, which will in turn differ from a large, established corporation dealing with substantial sums of money. There are accounts targeted at different-sized firms to meet their varying requirements as, for example, large companies may want to grant other people in the business access to the account and also use savings facilities with a view for future investment.
Whether you choose a high-street bank or an online challenger, they will normally offer the same basic functions like setting up direct debits and transferring money. However, as the specifics will vary between providers with different fees, limits, and overdraft provisions for example, it is important to spend time researching and comparing every element so you can find an account which meets all your needs.
Some of the key areas that are useful to compare are detailed below:
- Introductory offers
Banks create welcome offers to entice businesses to open an account with them. These may include cash rewards and a fee-free period, but businesses should not base their decision solely on these incentives. To make sure you choose the best account for your business in the long-term, you should also look at what happens after the introductory period, i.e. what fees and limits you would then be subject to.
For example, a provider offering a higher number of months fee-free may appear attractive at first, but you could find that the fees you have to pay afterwards are higher than an account which offers fewer fee-free months. Businesses are more likely to find a bank account that is more suited to their operations if they consider other elements, rather than simply choosing the account that initially offers the best deal.
The majority of banks will charge annual or monthly fees for their business accounts, but these are not the only costs to consider. Many banks will charge for certain activities, such as paying cash into the account, withdrawals, direct debits, cheque deposits, and bank transfers, so you would need to factor these fees into your comparisons.
This is where it would be particularly beneficial to consider how you would use your bank account. For example, if you handle numerous transactions on a regular basis, then having an account which charges a fee for every transaction may not be the best option. Alternatively, if your business deals with large sums of money, it may be more viable to choose an account with a set transaction fee, rather than one which charges a fee per £100 for instance.
Linked to the matter of fees is the question of limits. Many business bank accounts have limits to their services, or limits on what you can do for free until you then have to pay for certain actions.
Some accounts may not charge any transaction fees for payments up to a certain value, but then may introduce charges if you go over this figure. There may also be minimum and maximum amounts that you can hold in your account that could influence your choice of bank. By comparing all parts of the fee structure and the facilities available, businesses will be better placed to find the most suitable account and will also make sure that they are not caught out by any “hidden” costs later on.
- Overdraft facilities
Even if you’re not planning to use your account’s overdraft, it is still worth checking its terms and fees. Overdraft facilities can vary quite significantly between banks, with different limits, arrangement fees, and EAR charges, so familiarising yourself with these can help you to compare the providers more fully.
In addition to the arranged overdraft charges, you may also want to check what fees would apply should you exceed your limits, as unauthorised overdrafts will usually be subject to increased rates.
When comparing banking providers, businesses may want to consider the forms of customer service they offer. Most banks offer several channels of support, including live chat and phone helplines, but the operating hours and levels of service may differ and so may be something you want to factor into your comparison.
This is an especially crucial area to look at if business owners prefer to resolve any issues face-to-face, as this means they would have to choose an established bank with physical branches rather than an online-only bank.
If you are one of the many people that is using your mobile to bank on-the-go, then it is worth comparing the apps of each provider.
Online challengers have led the way in mobile banking and, although high-street banks have been following their example by creating apps of their own, businesses are likely to find that the specialist online banks still offer more advanced software and innovative digital tools. So, depending on how much you use mobile banking, it can be beneficial to assess the usability and features of the different apps to see which ones you prefer.
Businesses should also see which banks can integrate with their existing systems, such as their accountancy software.
Integrated banking and accounting systems can make it simpler and more efficient to manage your finances as data updates automatically across the platforms, removing the need to manually input the information.
Although some of the above points will be more important than others, businesses should consider all of them when comparing bank accounts. Because your bank account is an integral part of your business operations, taking the time to research the features of each provider will help you to find one that meets all your requirements and so avoid any potential difficulties in the future.