Business Savings Accounts Compared

Most small businesses need two piles of money: the operating balance that pays this month's bills, and a reserve — usually quarterly tax, sometimes a buffer against a slow season. The operating balance belongs in checking. The reserve should be earning something, and a business savings account is the default place to put it.

It is also, frequently, the worst-paying option available. Business deposit rates run well below the personal high-yield market, so the choice is worth five minutes.

Four places to put a business reserve

Why business rates lag

Consumer high-yield savings is a competitive acquisition market: online banks pay up to win deposits from people who will move for a better number. Business deposits are stickier — the account is bound to payroll, processors and autopay — so there is less reason to compete on rate.

The practical consequence is that a business savings account at the same bank as your checking is almost never the best rate available. It is chosen for one-click transfers and a single login, which is a real benefit for a reserve you touch every quarter. Just know what the convenience costs, and check the number against the current high-yield market before you accept it.

Insurance limits work differently than you think

Coverage is $250,000 per depositor, per insured bank, per ownership category. A business is a separate depositor from its owners, so a single-member LLC's $250,000 and the owner's personal $250,000 at the same bank are separately covered — but two accounts belonging to the same business at the same bank share one limit.

For reserves meaningfully above the limit, the options are splitting across banks, using a network that spreads deposits for you, or buying Treasuries directly. See where to buy Treasury bills.

What to look for

• Rate, with the balance tier attached. Tiered accounts advertise the top tier. Find the rate at the balance you will actually hold.
• Transfer limits. Six withdrawals a month is a common restriction on savings accounts; fine for a quarterly reserve, useless as a second operating account.
• Minimum balance to avoid a fee. A $10 monthly fee on a $5,000 reserve wipes out most of the interest.
• Whether it is at your checking bank. Internal transfers settle same day. External ACH takes one to three business days, which matters on a tax deadline.

The tax detail

Interest earned in a business account is business income. It arrives on a 1099-INT and flows through to the return the same way your revenue does. Keep the reserve in the business's name, not your personal account — paying the business's tax bill from personal savings is exactly the mixing that undermines an LLC.

Related

On the checking side: business account fees and no-fee business checking. On the personal side, the same comparison is HYSA vs money market.

Common questions

Can I use a personal high-yield savings account for business money?

For a sole proprietor it is possible but it muddles your records. For an LLC or corporation it mixes entity funds with personal funds, which is what you formed the entity to avoid.

How much should a business keep in reserve?

At minimum the tax you owe but have not yet paid. Beyond that, three to six months of fixed costs is the usual target, held somewhere you can reach in a day.

Are business savings accounts FDIC insured?

Yes, to $250,000 per depositor per insured bank. The business is a separate depositor from its owners, so business and personal balances at the same bank are covered separately.

Is a business CD worth it?

Only for money with a known date beyond the term. The rate premium over savings is usually small, and an early withdrawal penalty on a tax reserve is a bad trade.