How to choose a limited company bank account

Unless you plan on stuffing cash under your mattress — unsafe, impractical, and probably not that great for your back — opening a business bank account is one of the first things you’ll need to cross off your to-do list when you set up your limited company.

But how do you pick a limited company bank account?

Do you go with the bank where you have your personal current account, or is it worth shopping around? And what should you look out for to make sure you pick one that’s right for you?

Why open a separate bank account for your company?

It’s a basic principle of company law that a limited company is a separate legal person. This means your money and company money can’t mix. Your limited company must have a bank account in its own name.

The good news is that, besides keeping you on the right side of the law, having a separate limited company bank account also has other benefits.

Firstly, it’ll be easier to do your accounts.

If you do your accounts yourself, a separate bank account will save you having to sift through your statements to find out which transactions are business-related and which ones are personal. And if you outsource the task, your accountant will thank you and might even charge you less.

More to the point, using a personal account for business may violate your bank’s terms and conditions. Should they find out, they may close your account, and you’d be back to square one.

tide bank account

How to choose a business bank account: 5 things to consider

While opening a limited company bank account isn’t a matter of choice, there are loads of accounts to pick from. All major high street banks have a range of business bank accounts. There are also challengers — Tide, for instance — who offer online-only bank accounts.

But what should you consider before you take your pick and kickstart the application process?

Here are our five top tips.

1. How much will it cost?

Unlike personal current accounts, most business accounts have fees. Banks typically charge using one of three structures:

  • Flat monthly fee

You’ll get charged a fixed fee every month, regardless of how many and what types of transactions you make. Some online-only business accounts are subscription-based, so you may need to upgrade to a more expensive plan to unlock certain features or make more transactions. And, of course, some offer completely free banking.

  • Per-transaction rates and charges

Here, you won’t have to pay a fixed fee, but charges apply to certain transaction types like cheque deposits, ATM withdrawals, and transfers to accounts with other banks. You might also have a bundle of free transactions, with fees applying if you go over your quota

  • A mix of both

A monthly fee, plus charges on certain types of transactions, or fees kicking in if you go over your quota of free transactions

While it probably isn’t your idea of fun, it’s worth reading the fine print. This will help you:

  • Understand exactly how much an account will cost overall
  • Find out if there are ways to pay less. For example, some banks waive the monthly fee if you keep your balance within a certain limit
  • Understand if the account is a good fit for you. Pay and get paid primarily via Faster Payments? High cheque deposit fees won’t be an issue as long as electronic transactions are free or cheap. But if you do a lot of cash-based transactions, high deposit and withdrawal fees could be a deal-breaker

You should also watch out for introductory offers.

Many banks offer free banking plus other perks for a limited time, usually the first 12 to 24 months. Keep in mind, that introductory offers:

  • Will eventually expire. When they do, you’ll have to start paying all applicable fees in full
  • May only apply to new businesses. This means you won’t be eligible if you’re an established business that’s switching banks

2. How do you like to bank?

Are you happy logging on from an app? Or would you rather go to your local branch and forge a relationship?

Online banking creates less overhead, and banks may pass the savings on to you. The flipside is that it may be tougher to get a hold of a real person. And, in the case of online-only accounts, face-to-face meetings won’t be an option.

If you’re cool with doing most — or all — of your banking online, you’ll want to make sure you pick a bank with a strong digital offering. Look up their app on the App Store or Google Play Store and see what the ratings are like.

It’s also worth checking if you can connect your account to other apps. Connecting it to your accounting software, for instance, means your transactions will be imported automatically, saving you — or your accountant — the headache of manual data input.

If you’d rather bank in person, make sure your choice is practical. Do they have conveniently-located branches and ATMs? And how easy is it to book an appointment?

3. What other perks does the bank offer?

Alongside introductory offers, banks may also offer other goodies to entice you to sign up. These may include:

  • Free ongoing training and support
  • Money off business software
  • Interest on your balance when you’re in credit
  • Cashback when you buy from select retailers
  • A business credit card — handy for building your company’s credit score — and other lending facilities (more on this in a minute)

It seems obvious, but these perks will only be worthwhile if you actually use them. So, before you get carried away, think about what you’re most likely to benefit from. A hefty discount on a particular accounting platform is pointless if you’ve already invested money, time, and effort in another one.

4. Do you do a lot of international business?

Foreign transactions collectively cost small businesses an eye-watering £4 billion a year in hidden charges. That could be a huge dent in your profits. So if you often work with international clients and get paid in foreign currency, it’s a good idea to choose a bank with a good reputation when it comes to international transactions.

Things to consider include:

  • Does the bank have a transparent foreign exchange fee structure? Fee-free or commission-free doesn’t necessarily mean there are no hidden charges. The bank may still be building a markup into their exchange rate
  • What exchange rate do they offer? Some business accounts offer the interbank rate, which is the rate at which banks buy and sell foreign currency to each other. This is the fairest deal you can get
  • Can you open a dedicated currency account? If you trade a lot with EU businesses, for instance, a Euro account could help protect you from currency fluctuations. Similarly, a Dollar account may be the way to go if mainly work with US-based clients

5. What are their lending terms like?

Want an overdraft to tide you over when you’re in between contracts? Or need funds to grow your business or invest in specialist equipment?

Lending criteria and interest rates can vary considerably between banks. And while you don’t necessarily have to borrow from the bank you do your day-to-day business banking with, it’s still worth checking what they offer.

Find out:

  • How easy is it to qualify? Do they have a minimum income threshold, or a minimum number of years you have to have been active? And what documents will they require?
  • How flexible are the terms? How much could you borrow without putting something up as security, for instance? And what are the shortest and longest terms you could borrow for?
  • How much can you expect to pay in interest and other fees?

It’s also worth checking if they offer specialist lending products. For example, invoice finance is a quick and flexible way to raise capital by borrowing against your unpaid invoices.

How do you open an bank account for your company?

You’ve thought things through and picked your ideal bank account. Happy days.

But how do you apply? And what documents will you need?

Digital account providers like Tide (completely free banking) will let you complete the process entirely online and have your account up and running in a matter of days.

By contrast, while you can usually start the process online, high street banks may require you to finish with an appointment in branch or over the phone. This means it can take longer for your account to be up and running.

The documentation you’ll need also varies from bank to bank. That said, as a rule you’ll have to provide:

  • Proof of your identity. This could be your passport, your UK driving licence or, if you’re an EU citizen, your national identity card. If the application process happens entirely online, you typically also have to send a selfie or record a short video of yourself to prove it’s really you
  • Proof of your address — documents you can use include your latest Council Tax bill, a tenancy agreement, a mortgage statement, or a bank statement or utility bill from the last three months
  • Proof of residency. If you’re from outside the EU, you’ll need to provide evidence of your right to live in the UK, such as indefinite leave to remain. EU citizens will probably have to provide similar proof of status when freedom of movement ends in 2021
  • Your company’s certificate of incorporation. Not all banks will need this, and you don’t have to wait for your limited company to be registered to apply for a bank account, either. Tide, for instance, can even set up a limited company for you for free
  • Other information about your business, such as your estimated annual turnover, how many transactions you expect to go through your account in an average month, and which countries you do business with

A limited company bank account is a must, but you can still choose wisely

You can’t do business as a limited company without a limited company bank account. Luckily, competition is stiff, which means you can get a great deal if you shop around.

The key is to keep a cool head. Think carefully about how you do business, and make a list of your musts and nice-to-haves. The clearer you are about what you need from a limited company bank account, the less likely you’ll be to get blinded by products that seem great but aren’t a good fit.

Open a business bank account now!

If you don’t like the prospect of paying monthly fees to the high street names, take a look at some of the leading online-only business account providers — Tide, for instance.

tide bank account

Tide was responsible for 1 in every 8 new business account openings over the past year.

Opening a limited company bank account is only the start. You’ll also need to keep your books in order and HMRC onside. A specialist accountant can help with that and make sure you don’t pay more tax than you have to.

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