What are business savings accounts?

One bank estimated an approximated loss of around £992 million in interest for UK businesses – which they state results from keeping funds in low interest rate deposit accounts. With digital banks like Tide offering approximately 3.81% variable AER on business savings accounts, we thought it high time to share a few facts about business savings accounts. 

What are business savings accounts? 

Business savings accounts are similar to current accounts or debit accounts, but they’re designed specifically to help your business save money. They often come with higher interest rates than standard debit accounts – meaning the provider pays you a higher percentage of your total funds as interest for keeping your money with them. 

Some business savings accounts add barriers to withdrawing funds to incentivise you to hold onto the savings. They’re not only accessible to limited companies, they're also suitable for sole traders, contractors, and freelancers. 

You don’t usually use a business savings account to pay for regular transactions or send money to suppliers, and you’re unlikely to use it as an overdraft facility. They’re more like a tool to help you save with the added benefit of getting to see your money grow as time passes.  

What can I use a business savings account for?

There are several reasons some business owners choose to open business savings accounts. Here are just a few.  

Save for tax season 

Ever been caught by surprise by a tax bill? Between Self Assessment, Corporation Tax, and VAT bills, it can be easy to lose track. If a tax bill does happen to slip your mind, you could be left with a surprise payment of several thousand pounds due within a few months or even days. A savings account can both help you save for the bills you are aware of, and ensure you’re prepared just in case one does slip through the cracks.  

Emergency fund 

An emergency fund is an essential tool for growing businesses. Beyond taxes, businesses can be hit with a range of unexpected costs. Everything from a dip in working capital due to a lost client deal, to needing the funds to jump on an exciting opportunity for growth can result in you needing fast cash. An emergency fund can help ensure you’re better prepared during these times, while also ensuring you’re able to continue meeting your payment obligations, such as loan repayments, payroll requirements, and rent. 

Earning interest 

Business savings accounts often come with higher interest rates than those offered with the accounts you may use to regularly pay suppliers and collect funds from clients. This makes them a helpful way to earn some money from your savings, particularly if you’re more risk-averse and don’t like the idea of keeping your money in investments such as equity in other businesses and stocks. 

Do I have to pay tax on interest? 

Yes, you do have to pay tax on any possible interest you may earn. Let’s say you run a limited company, you would likely add the interest onto your earnings amount for your annual accounts, which would increase the amount you pay in corporation tax. If, on the other hand, you’re self-employed, you would add it to your Self Assessment submission, and would pay additional taxes as part of your personal tax. 

What does AER mean? 

As mentioned, Tide pays approximately a little under 4% AER to their clients – but what does that mean? AER stands for Annual Equivalent Rate. It’s a way to show you what you could be expected to earn over the course of a year. Essentially, if you held £100,000 in a Tide business savings account, you could gain around £3,800 in interest over a year. 

What is variable interest? 

Variable interest rates can change over time as a result of market conditions, internal operations, and governmental decisions. Fixed interest rates stay the same for the period of time agreed between you and the lender. This could be one year, two, or five, depending on what the lender is offering. 

Why choose Tide for your business savings account? 

Tide offers a variable interest rate of 3.81% AER to their clients. With Tide, you’d join a community that currently makes up more than 10% of the British SME population – that’s over 1 million freelancers, sole traders, and growing businesses who together, have rated Tide “Great” on Trustpilot. Access is fee-free, you can manage your finances from the app, and you can start saving with as little as £1, meaning you’re free to start enjoying monthly interest as soon as possible. 

Find out more about Tide’s business savings accounts.

Find a business loan with Funding Options by Tide

Many successful businesses look towards financing options to help grow their business and manage cash flow. If you’re considering taking out business finance, whether in the form of an asset-based loan or a commercial mortgage, we may be able to help. 

We’ve helped over 18,000 businesses and sole traders gain access to more than £850 million in funding. If you’d like to be next, just click the link below and submit your information to find out if you’re eligible. 

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Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.