If you're starting a new UK business, then you'll need to open a dedicated bank account to handle credits from your customers and debit transactions to your suppliers. Existing established businesses may be looking to switch providers to gain additional benefits or make savings on monthly fees.
You may also have other requirements such as international payments, financing, working capital, company insurance, merchant services or private banking.
There's a limited range of options for commercial customers, offering completely fee-free accounts. These are typically available for sole traders, limited companies and limited liability partnerships. Here are the most popular accounts:
Lloyds Bank offers new businesses fee-free banking for 18 months, and switchers six months. You can apply directly online and manage your account using their telephone or Internet services. You get the following from Lloyds:
The Santander business bank accounts have won numerous awards for its simplicity to small business customers and can be opened online in minutes. We recommend this account for new business owners and existing businesses. With this package, you receive the following at no cost:
Existing personal Santander customers receive 18 months fee-free banking. If you don't hold a personal current account, you'll receive 12 months. The only transactions you'll have to pay for on either of the Start-up Business current accounts are non-standard account transactions such as CHAPs, Change Giving and any other non-standard transactions.
During the initial period, you receive unlimited direct debits, standing orders, bill payments, debit card payments and unlimited automated BACS credits.
This offer is available for new businesses and existing businesses wishing to switch their account. Opening a business bank account is easy as you can do it online or via the telephone.
The Barclays account is perfect for all types of businesses, especially new startup business customers. You can open this account online. You get the following services included during the first year for turnovers of up to £2 million:
After the 12 months introductory period, you'll be placed on a regular pricing plan.
The other main institutions also offer free banking, but for a limited period of time, then after that they'll make various charges. Be aware that the FSCS (Financial Services Compensation Scheme) introduced by the government covers deposits for individuals and businesses up to £75,000 per institution (from January 1, 2016).
If you approach the banks direct, then you'll get the offers outlined above. Members of various clubs and associations may provide a better deal.
Banks won't allow you to deposit personal funds into a business account or add business funds into personal accounts if you're a limited company.
If you're a sole trader, then you can continue to use your current account as normal. However, you'll need to split the business and personal expenses for your accounting records. It's easier to manage your accounts especially if you deal with other currencies such as the Dollar or Euro.
If you think you'll need to be in contact with your bank on a personal level, then you may need the services of a business advisor. To find what's best for you, simply walk down your local high street and meet with all the banks concerned.
Ask what they can do for you and if you like the people in your branch.
For the majority of businesses, telephone and Internet Banking services are sufficient for their daily needs. Precluding branch visits keeps the banks and your costs as low as possible.
Once you've chosen the bank you wish to use, you'll need some documentation to take along when you open it to prove that you've a viable business. Ask your bank what documentation they require. Most require the following:
When opening an account online copies of these documents will be requested to be posted into a central mailing house for processing.
Banks are in the business to make money so only take a product if you really think you'll need it. Some may try to sign you to a form of "business club" with additional benefits. There are usually better alternatives that offer business planning or accounting software.
Remember The Federation of Small Businesses offers lifetime free banking with the Co-op bank, including legal advice from just £175 per year.
Ask about the different types of accounts that are available. For example, HSBC offers an automated tariff if you only transact over the Internet or telephone. This account saves money on regular fees which is vital for any organisation where profits and cash flow are everything.
Once your introductory period has come to an end, you'll incur charges for every transaction made from your current account. Here are the most typical amounts.
Banks change their fees from time to time during normal operations. Increases occur at least once a year in addition to when the Bank of England changes base interest rates. They should send you a booklet when things change in your bank account. Most charges are similar, but we have compared charges for the main standard fees below:
Most accounts incur a monthly account maintenance charge for turnovers under £1.5 million. Here are some common charges:
The most common types of payment and receipts all incur a charge with the banks if you're on their standard tariffs. Some paid services such as a Business Plus account incur lower or no fees, but will incur a monthly "membership" fee.
Apart from the standard items shown above, there are other transactions that a bank will charge for, and here are some of them:
We've selected the five most popular financial institutions to compare prices for this exercise. There are others out there you may want to research before making a decision. Here are other institutions worth exploring: