22/02/2024

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Business checking vs. personal checking: What’s the difference?

Business checking vs. personal checking: What’s the difference?

While you might think all checking accounts are the same, business checking and personal checking accounts offer different services, in addition to keeping your personal expenses separate.  

Business vs. personal checking: Overview

Business bank accounts offer two benefits: Services to help you manage your business finances, as well as keeping your business dealings separate from your personal affairs.

The services include helping you pay your suppliers, meeting payroll obligations and receiving different payment types from a multitude of customers every day, possibly in the form of debit and credit card swipes, checks, cash and electronic transfers from digital wallets. 

And it also comes in handy during tax time: The Internal Revenue Service recommends separating business and personal accounts. 

“This separation may be beneficial to maintain clear financial records for your business and make it easier for your accountant to keep accounting and tax records,” said Jeffrey Wood, certified public accountant (CPA) and partner at Elysium Financial in Utah. 

Checking accounts for individuals are a different type of bank account for everyday personal use. You might use one to receive paychecks, make debit card purchases, pay personal bills and transfer funds. 

Business vs. personal checking: Key differences

Sign up

While anyone could open a personal checking account, you can’t sign up for a business account without a business. Depending on the bank, you’ll likely need to provide your business formation documents, any ownership agreements, the business license, articles of incorporation (if applicable) and employer identification number (EIN) (or your Social Security number, if it’s a sole proprietorship). 

Access

As the business owner, you might not want to always be the one running around and doing the purchasing. Business checking accounts can allow debit cards for employees and different account profiles, which allows employees to access the business’s financial information, add bills and such. You can set spending limits and adjust levels of permission, such as requiring manager approval before bill payment is sent. 

Software

Besides helping you to manage day-to-day transactions, business checking accounts often have features to streamline operations, which personal checking accounts lack. These might include:

  • Bookkeeping software integrations.
  • Payroll processing services.
  • Merchant services to process customer card payments.

Fees  

Business checking accounts may have both higher fees and fees that you may have never considered. Most Navy Federal personal checking accounts, for instance, don’t charge a monthly service fee, but its business checking accounts can charge up to $20 a month. The Axos Interest Business Checking account charges $0.50 each if you exceed 100 transactions per month.

Read an account’s “fee schedule” to see how its pros and cons compare to your business needs.

Legal protections

“There are also legal and liability protection reasons to operate your business separately from yourself,” said Wood.

The Small Business Administration advises that business banking creates limited personal liability protection, which means that you may not be held liable for business debts or damages in most cases. 

Who should open a business checking account?

If you operate a business — a sole proprietorship, partnership, limited liability company (LLC) or corporation —  opening a business checking account is a good idea. 

“As a business owner, it’s important to have a business checking account,” said John Boyd, certified financial planner (CFP) at MDRN Wealth.

In addition to all of the possible account capabilities, accounting, tax and legal benefits of a business checking account, it can also offer you an opportunity to build your business’ financial history, in case it ever needs to take out a business credit card or a loan, and provide an air of professionalism — customers can make payments to the business account rather than your personal one, which can inspire confidence. 

Choosing the best checking account for your business

If you decide to open a business checking account, it’s important to explore options to find the best fit for your situation. As you consider different business checking accounts, keep an eye on the following details:

  • Fees. You’ll want to find a business bank account with minimal fees for the services you plan to use. If you’re doing international transactions, you may select an option with no foreign wire transfer fees.
  • Interest rates. Some business bank accounts offer interest-bearing opportunities, which can add some cushion to your bottom line. 
  • Service options. While there are financial institutions that offer in-person services, others don’t. Make sure you are comfortable with the level of service provided. 
  • Transaction limits. As your business grows, you might not want to be hemmed in by transaction limitations. Keep an eye on how limits will affect you now and in the future.
  • Software integrations. Many business checking accounts offer software integrations to make your life easier. For instance, you might want an account that integrates with your current bookkeeping software. 

Choosing the best personal checking account for your financial goals

Similar to choosing a business account, when it comes to picking a personal checking account, keep a close eye on the costs, the perks and the services offered. 

For example, some checking accounts offer to waive the maintenance fee if you maintain a minimum account balance, while others are completely free of monthly fees from the get go. 

Still others are interest bearing. While the rate won’t be more than what a high-yield savings account offers, earning something on the funds in your checking account is better than nothing. 

Which checking account is right for you?

Anyone who operates a business of any size should seriously consider opening a business checking account. 

Remember, you can open both a business and a personal checking account. If you don’t operate a business, then sticking with a personal account is the way to go. But if you do, having both types of accounts can make it easier to keep everything separate.

Frequently asked questions (FAQs)

While you may be able to run business transactions through your personal checking account, it’s not a good idea to mix your business and personal finances in the same account. Even if you run a very small business, consider setting up a separate account to handle all of your business transactions. 

You may be able to deposit a check written out to your LCC into your personal checking account — your ability to do so is dictated by the bank’s rules and your state’s laws. To keep things simple, consider opening a separate business account. 

Yes. Transfering funds from a personal checking account to a business checking account should be simple. You could log into your personal account online and make the transfer if you use the routing and account number for the business account. 

You can work with the same bank to operate both a personal and business checking account. But it’s an option only if the financial institution offers both types of accounts. 

If you own a business, opening a business checking account to operate your business financial transactions is ideal. But the core functions of both a business checking account and personal checking account are similar.