Business savings accounts exist and work differently than personal ones

Yes, you can open a business savings account. Most banks offer them as a separate product from personal savings accounts, and they're designed to hold money that belongs to your business rather than to you as an individual. The account is registered in your business's name, not your personal name, and the money in it is legally separate from your personal finances.

A business savings account functions like a personal savings account in basic ways — you deposit money, it earns interest, and you can withdraw it — but the rules around who can access it, how it's taxed, and what paperwork you need to open one are different. Banks treat business accounts as accounts for an entity (your business) rather than for a person.

Key Takeaways

  • Business savings accounts are registered in your business's name and keep your business money separate from personal money for tax and legal purposes.
  • You'll need to provide your business structure (sole proprietorship, LLC, corporation, partnership), an EIN or tax ID, and often a business license or formation documents.
  • Interest rates on business savings accounts are typically lower than rates on money market accounts or CDs, and fees are often higher than personal accounts.
  • Multiple owners or employees can be authorized to access the account, depending on what permissions you set up with the bank.
  • The money in a business savings account is taxed as business income, not personal income, and you report it on your business tax return.

What you need to open a business savings account

Banks require different documents depending on your business structure. If you're a sole proprietor (you own the business by yourself with no formal business entity), you may only need your Social Security number and a personal ID. If you operate as an LLC, S-corp, C-corp, or partnership, you'll need an Employer Identification Number (EIN) from the IRS, which is free to obtain and takes about 15 minutes online at irs.gov.

Most banks also ask for a business license, articles of incorporation or organization (the document that officially created your business entity), or a partnership agreement. Some banks will open the account with just your EIN and a government-issued ID if you can't produce the other documents immediately, but they may freeze the account until you provide them. Call the bank's business banking line before you go in — different branches sometimes have different requirements, and knowing what to bring saves a trip.

You'll also need to decide who can sign checks, make withdrawals, and access the account online. Banks call these authorized users or signatories. You can add employees, co-owners, or accountants, and you can set different permission levels for different people (for example, one person can view the balance but not withdraw, another can withdraw up to a certain amount).

How interest and fees work on business accounts

Business savings accounts typically earn less interest than personal savings accounts at the same bank. As of early 2024, personal high-yield savings accounts often pay 4% to 5% annual interest, while business savings accounts at the same institutions pay 1% to 3%. The difference exists because banks assume businesses have more stable, predictable cash flows and don't need the same incentive to save.

Fees are usually higher on business accounts. Many banks charge a monthly maintenance fee ($5 to $25 depending on the bank) even if you maintain a minimum balance, and they may charge per-transaction fees if you exceed a certain number of withdrawals per month. Personal savings accounts often have no monthly fee. Some banks waive business account fees if you keep a minimum balance (often $2,500 to $10,000) or if you also have a business checking account with them.

Before opening an account, compare the interest rate, monthly fee, minimum balance requirement, and transaction limits across at least two banks. A business savings account that charges $20 per month will cost you $240 per year, which can outweigh the interest you earn on smaller balances.

Business savings accounts versus business money market accounts and CDs

Banks offer three main ways to save business money, and they have different tradeoffs. A business savings account lets you withdraw money whenever you want with no penalty, but pays low interest. A business money market account typically pays higher interest (sometimes 1% to 2% more than a savings account) but requires a higher minimum balance and limits how many withdrawals you can make per month. A business certificate of deposit (CD) pays the highest interest but locks your money away for a set period (3 months to 5 years) — if you withdraw early, you pay a penalty.

Choose a savings account if you need to access the money regularly or can't predict when you'll need it. Choose a money market account if you have a larger balance and can live with withdrawal limits. Choose a CD if you know you won't need the money for a specific period and want the highest interest rate the bank offers.

How business savings accounts affect your taxes

Money in a business savings account is taxed as business income on your business tax return, not on your personal tax return. If you're a sole proprietor, you report it on Schedule C (Form 1040). If you're an LLC taxed as a corporation, you report it on Form 1120-S or Form 1120 depending on your election. If you're a partnership, the business reports it on Form 1065 and you report your share on Schedule E.

The interest the account earns is also taxable business income. If your business savings account earns $500 in interest over the year, that $500 counts as income and you owe tax on it. The bank will send you a Form 1099-INT at the end of the year showing how much interest you earned.

You don't pay tax on the money you deposit into the account — that's money your business already earned and already paid tax on (or will pay tax on when you report your business income). You only pay tax on the interest it earns while sitting in the account.

Keeping business and personal money separate

A business savings account is one tool for separating your business finances from your personal finances, which protects you legally and makes taxes simpler. If your business is sued or goes into debt, creditors can't easily reach your personal savings account if the money is clearly in a separate business account. If you mix business and personal money in one account, a court may decide that the separation between you and your business is not real, which can expose your personal assets to business liability.

For tax purposes, the IRS expects you to keep business and personal money separate. If you deposit business income into your personal account and pay personal expenses from it, you'll have a harder time proving to the IRS what portion of the account is business income and what portion is personal. A separate business savings account makes it obvious.

You can transfer money between your business savings account and your business checking account as often as you want without tax consequences — it's all your business's money. You can also withdraw money from your business savings account and deposit it into your personal account, but that's considered a distribution or withdrawal of business profit, and it may have tax implications depending on your business structure.

What happens if your business closes

If you close your business, the money in the business savings account belongs to the business, not to you personally. If your business is a sole proprietorship, you own the business, so you can withdraw the money and it becomes personal income (and you'll owe tax on it if you haven't already). If your business is an LLC or corporation, the money belongs to the entity, and how it's distributed depends on your operating agreement or bylaws and on whether the business has debts or other obligations.

If your business has unpaid taxes, creditors, or other debts, those claims may attach to the business savings account before you can withdraw the money. Consult a business accountant or attorney before closing a business that has a savings account with a balance.

Frequently Asked Questions

Do I need an EIN to open a business savings account?

It depends on your business structure. Sole proprietors can often open an account with just a Social Security number and ID. LLCs, corporations, and partnerships need an EIN. Getting an EIN is free and takes 15 minutes online at irs.gov, so most business owners get one even if they technically don't need one yet.

Can I have multiple business savings accounts?

Yes. Some businesses keep separate savings accounts for different purposes — one for operating expenses, one for taxes owed, one for payroll. There's no legal limit, though each account may have its own monthly fee.

What if I'm a sole proprietor and I'm the only person who uses the account?

You can still open a business savings account in your business's name (or your name with a "doing business as" designation). It keeps your business finances organized and separate from personal money, which helps at tax time and protects you legally if the business is sued.

Can employees withdraw money from the business savings account?

Only if you authorize them to. When you open the account, you decide who has access and what they can do. You can add an employee as an authorized user with permission to withdraw, or you can restrict access to owners only and have employees request withdrawals from you.

Is the money in a business savings account protected if the bank fails?

Yes, up to $250,000 per account at banks insured by the FDIC (Federal Deposit Insurance Corporation). Most banks are FDIC-insured. If you have more than $250,000 in business savings, you can open accounts at multiple banks to keep all of it insured, or ask your bank about other insurance options.