Business vs personal bank accounts: how to choose

Getting paid as a business owner is rewarding, but after you celebrate those hard-won sales, you may have this question: Where should that money go? 

Can you put it in your personal transaction account? Do you need to have a separate business transaction account? What are the rules?

Keeping your personal and business finances separate is a smart idea to maintain accurate records, understand your business’ financial health and make informed decisions. Even further, those separate accounts might not just be a recommendation depending on your business, they could be a requirement.

Use these links to jump to a specific section, or keep reading to learn more about business vs personal bank accounts.

What’s the difference between business and personal transaction accounts?

A business transaction account helps business owners hold and manage money made within a company. Personal transaction accounts help individuals hold and manage their personal funds. Some of the main differences include: 

• Business bank accounts have more legal protections than personal bank accounts, meaning you won’t be offered protection from business liabilities when using a personal transaction account for business expenses
• Business bank accounts can do a better job at solidifying your brand
• Personal bank accounts and business bank accounts have a different fee structure

Individuals who operate under a trading name or as a company will have to open a business transaction account that’s separate from their personal transaction account.

Here are a few key factors of a business banking account:

• Includes a business transaction account 
• Allows you to make payments from the account, transfer money electronically and use a business debit card
• Helps you separate savings from working capital
• May require a minimum deposit and/or balance requirements and monthly fees On the other hand, personal transaction accounts are intended for personal funds

 Personal fund activities include:

• Depositing pay from an employer
• Paying personal expenses, including mortgage and phone bills
• Debit card purchases
• Transferring funds to personal savings accounts
• Withdrawing money from an ATM
• Gifts and personal payments to friends, family and acquaintances

Why should I consider a business bank account?

When it comes to business vs personal bank accounts, opening a dedicated business bank account can help you:

• Safeguard your business funds by separating your personal finances
• Easily monitor your business spending
• Create more realistic budgets
• Practise better bookkeeping habits that keep your business finances organised
• Help you get a business loan, line of credit or a business credit card when you need one

In short, even if a separate account isn’t required for your business, it’s still a good idea to get one. We’ll explore these benefits in depth below.

Can I use the same bank for personal and business banking?

Yes! When choosing a bank for your business bank account, many people start with financial institutions they know and like. If you have a personal bank account in good standing, you may get a better offer on a business bank account at the same bank.

Many banking institutions that offer consumer or personal bank accounts also offer business banking services. However, reviewing the specific features of a business bank account is always a good idea before you sign up. 

Business transaction account benefits

It makes sense for business owners to separate their bank accounts for business and personal use. Here are a few business bank account benefits that you should consider.

Accurate accounting

When you open a business transaction account, you are able to keep closer tabs on your cash flow. When you blend the two accounts, it’s common to get confused with funds moving in and out frequently. Separating your business transactions will also reduce stress for your bookkeeper, resulting in more accurate accounting.

Streamlined tax reporting

You can take the hassle out of tax reporting when you have a separate business transaction account. Save the headache of sifting through all your transactions to decipher which are personal or business expenses. With an unconnected transaction account, you will have a built-in record of all company spending.

Asset protection

Dividing your business and personal spending into two accounts can protect your assets from potential debt or fraud. If you blend the two into one account, a court could go after your personal funds if you run into legal issues with your business.

Business vs hobby legitimacy

The Australian Taxation Office (ATO) requires you to report all income, but a combined transaction account could falsely categorise your company as a hobby instead of a legitimate business. Keeping your funds separate and providing a paper trail of business transactions would help prove you are running a fully-functioning company.

Enhances your professional brand

Your image and reputation are critical as a business owner. For example, your clients may see you as a more established business if payments go directly to a business transaction account vs a personal account. By opening a business transaction account, you could also expand your line of credit or chances of taking out a small business loan in the future due to establishing trust.

Business transaction account factors to consider

Deciding which business bank account is best for you is a big decision. As a business owner, you will want to look at the key features of both types of bank accounts. Here are some things you should consider:

• Fees: Most business banking accounts have monthly and annual fees. Make sure to look for one that waives or reduces the monthly fees if you maintain a certain amount. 
• Minimum deposit and balance requirement: Some business banking accounts require a minimum opening deposit amount and maintaining a certain balance. It’s best to find an account that doesn’t require a large deposit or high balance requirement. 
• Interest rates: The highest interest often provides the highest return on investment, but it shouldn’t be the only priority when choosing a transaction account. Most accounts with high interest rates also come with increased monthly fees that could cancel out your earning potential.
• Transaction limits: Certain banking accounts restrict the number of deposits and withdrawals you can make each month.
• Employee debit cards: You can give your employees limited access to your business banking account for company purchases. However, not all banks offer this perk. It would be beneficial to choose a business banking account that offers employee debit cards.
• Online services: With new technology on the rise, certain banks offer online services. Manage your funds and get all your banking down in the comfort of your home or office. However, not all online banks have physical branches in every town, so make sure to check to see if your business bank has a location nearby.
• Sign-up bonuses: While sign-up bonuses aren’t standard at most banks, certain business banking accounts will offer new customers cash bonuses for signing up, making a certain deposit and maintaining a specific balance.

What do you need to open a business bank account?

One of the biggest differences between personal vs business banking accounts is the application process and requirements. 

Nearly everyone can open a personal banking account, but to open a business banking account you will need to produce various forms of documentation such as your business licence.

Keep in mind that the exact documentation required will vary depending on the bank you are applying to and your overall legal structure. Sole traders typically use their own personal information, while companies need to provide more business-related documentation in addition to personal information.

Business banking account FAQs

Still not sure about the ins and outs of business vs personal transaction accounts? Check out some frequently asked questions to ramp up your understanding of these bank accounts.

Final thoughts

While personal transaction accounts are great for storing your funds, opening a separate account for business expenses could serve a larger purpose. Business banking accounts allow you to legitimise your company, streamline bookkeeping and protect your assets. Making the switch could greatly enhance your overall business.

Now that you have more information regarding business vs personal transaction accounts, you are ready to enhance how you run your company. If you are looking for other ways to manage your business expenses, check out QuickBooks for seamless insights into your business finances. 

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