Do You Need a Business Checking and a Personal Checking Account?

Business vs. Personal Checking Account: What's the Difference?

Business and personal checking accounts share a lot of the same DNA. They're secure places to deposit and keep your money. They allow you to make payments and transfer funds. Some business checking accounts are virtually identical to personal checking accounts and they provide just the basics.

But some businesses need more from a checking account. Depending on your business, any of the following business checking account features may be helpful:

• Integration with business accounting software
• Invoicing, bookkeeping or tax-planning tools
• Debit cards with separate spending limits for employees
• Integration with merchant services (to accept credit card payments) or payment processors
• Permissions that allow limited access for employees, accountants or consultants
• Interest on checking account balances

You may not find all of these features in a single account. But the wide range of business checking accounts now available at banks, credit unions, business banks and online banks makes it likely you can find an account with the features you're looking for—and maybe a few you didn't know existed.

Business checking accounts may have different fee structures, minimum deposit and balance requirements, and transaction limits, compared to personal checking accounts. These vary widely, too, so be prepared to shop around for the best fit.

Finally, a business checking account can open the door to a business banking relationship that may include savings and investment accounts, business credit cards, lines of credit and loans, and financial advisory services. If these are of interest to you, look for a financial institution you would like to work with across the board.

Do I Need a Business Checking Account?

If you run an ongoing business, you most likely need a business checking account. A dedicated account helps to keep your business income and expenses separate, so your money is easier to track and manage. Here are four compelling reasons to consider a business checking account:

Doing Taxes Is Easier

Reporting your business income and expenses at tax time is simpler when you don't have to sort through a tangled mess of business and personal transactions in a common account. Keeping your business finances separate from your personal ones makes it easier to keep accurate records. Some business checking accounts even come with digital tools that help you auto-save for your tax bill and generate the right forms when it's time to pay.

Accounting Is Simpler

Keeping a separate business account allows you to generate a quick profit and loss statement, keep an eye on cash flow or project sales for the year without having to weed out personal expenses to get an accurate read. Operationally speaking, business checking accounts may streamline your workflow by integrating directly with accounting software. Some online banks offer accounting tools that help you generate invoices and manage tax payments using the bank's platform—no separate accounting software required.

Helps Establish Business Credit

One of the factors that can help you establish and build business credit is having a dedicated bank account in the name of your business. Business credit can be instrumental in securing business credit cards, lines of credit and loans.

Protects Your Personal Assets

According to the U.S. Small Business Administration, keeping business funds in a separate account can help demonstrate that you are not commingling business and personal funds, which may protect your personal assets in a business lawsuit.

How to Open a Business Checking Account

Opening a business checking account requires a bit of strategic thinking upfront. Your banking needs may be different for your business than they are for your personal account, so you may want to put a little additional thought into which account—and financial institution—is the best fit.

1. Spell Out Your Needs

Start by taking stock of your needs. Business checking accounts come in many shapes and sizes. If you have a simple, informal side business freelancing a few hours a month, you may only need a simple, fee-free checking account. If your business is more complex, added features like integration with accounting software or popular payment processing platforms may streamline your finances.

Here are business banking needs to consider as you sort through your options:

• Cash deposits
• Branch access
• Integration with payment apps like Square
• Wire transfers
• Electronic transfers: Automated Clearing House (ACH), same-day ACH and international
• Debit cards for you and employees
• Low fees or no fees
• ATM access
• Links to high-yield savings accounts or merchant services to accept credit cards
• Invoicing, tax planning and accounting tools
• Business banking relationship that may include credit and loans
• FDIC (or NCUA) insurance

2. Shop for an Account

Once you have a sense of your needs, start looking for an account and financial institution that fit the bill. You might start in one of these three places:

• Your current bank: Your personal bank is already familiar to you. Transferring money between your business and personal accounts at the same bank may be easier than doing interbank transfers. And maintaining multiple accounts at the same bank may help qualify you for relationship banking rewards. The downside here is your personal bank doesn't necessarily have the best business account for you, and your business account could end up being much more active than your personal account.
• Online bank: Online banks offer business checking accounts with low or no fees, plenty of digital tools that make managing your money easier and fast electronic money transfers. If you choose to open a business savings account, an online bank may offer a high interest rate as well. However, online banks typically offer no or a limited number of branches. If you prefer face-to-face banking or need to make frequent cash deposits, make sure you're comfortable with your options.
• Local bank or credit union: Chances are, there's a local bank or credit union that offers full-featured business checking accounts and friendly branch access for your in-person banking needs. But if you run an online business and manage your entire life in the digital realm, your first consideration might be choosing an account with a great digital banking experience instead.

3. Open Your Account

To open a business checking account, you'll need some basic information on you and your business.

• A tax identification number: Sole proprietors may use their Social Security number. Corporations, partnerships and employers need an Employer Identification Number (EIN).
• A government-issued photo ID: You'll need to provide your full name, address and date of birth.
• Business documents: These may include your business license, fictitious name certificate and corporate documents.

Be prepared to fund your account with at least the minimum opening deposit amount if there is one.

The Bottom Line

One of the big challenges to running a business is managing money. Opening and maintaining a dedicated business checking account is a fundamental step to overseeing your business funds successfully. New account features and a growing variety of banking options make it easier than ever to find an account that will meet your needs—and maybe even make you a better, less frazzled money manager.