Which business bank account should I open for my Limited company? – (Sam Bacall)
As accountants, one of the most common questions we are currently being asked, by both established companies and new start-ups, is:
“Can you give us some guidance on which bank account our company should open?“
This is one of those questions that falls into the category of ‘why on earth would an accountant have expertise in this!’. If you didn’t know already (or are guilty of thinking along the same lines), accountants are expected to know everything about anything associated with a “£” sign!
Perhaps foolishly, rather than politely admitting to the client that we wouldn’t know any better than your average joe off the street, through a combination of; Google search, experience and, common sense, we cobble together a sensible response (without overcommitting of course!). After this process has repeated several times, we do actually find ourselves in the position of being able to offer some helpful guidance.
Key factors to consider
Like many decisions, there are various factors to weigh up and some may be more important to your business than others, depending on your priorities and circumstances.
Some of the key considerations to consider will be:
- Eligibility – factors will include turnover level, legal status (sole trader, limited company etc.), UK residency and credit rating.
- Access to an overdraft – Many businesses use an overdraft to help manage short term cashflow. Therefore, being able to get access to an overdraft, size and cost of overdraft may be a priority for some.
- Links to accounting software – these days many businesses are using accounting software which has a live bank feed. This can be very convenient and save time and money when it comes to bookkeeping and keeping financial records up to date.
- Physical branches – If you are looking for a more personal experience, face to face service, complex advice or deal in cash, then you will want a bank with physical branches. For this, you need to be considering the traditional high street banks.
- Account Fees – many traditional banks have an initial free period or are free below a certain transaction level. The newer Fintech/Challenger banks often start free and then have add-ons or “Pro” packages which have fees attached.
- Transaction fees – depending on the account there can be a range of different charges, including for bank transfers, cash withdrawals, cash deposits, international payments, automated payments etc.
- FSCS protection – The Financial Services Compensation Scheme (FSCS) protects up to £85,000 per bank should the bank fail. Not all bank accounts will offer this protection, and this will depend on the financial institution the account is held with. Many of the new Fintech/Challenger banks do not have this cover, though some do have over forms of safeguarding and therefore this is worth looking in to.
- International payments – some banks do not support these at all or will only transact with certain lower risk countries. There is a wide range of fee levels for these payments, depending on the bank and bank account, again something worth researching if you are going to have regular International transactions.
Different types of bank
Traditional High Street banks
Examples: Barclays, RBS, Natwest, HSBC, Santander, Lloyds, Metrobank
| Pros | Cons |
| Physical branches | Often very slow and difficult to open an account |
| FSCS protection | More and more frequently, these banks are rejecting new small businesses and are actively seeking to reduce their small business portfolio. |
| Accounting software integration | Although investing in technology, often this is not integrated into the existing legacy technologies particularly well. |
| Access to overdrafts and wide range of loan facilities at competitive rates | Slow to react to new market technologies |
Fintech/challenger banks
Examples: Starling, Monzo, Revolut, Wise, Atom
| Pros | Cons |
| Quick set up | No physical branches or face to face customer service |
| Accounting software integration and other APIs | Often need to pay extra for dedicated support |
| FSCS protection (Starling & Monzo) or other protection | Borrowing is more limited than with traditional banks and often at higher interest rates. |
| Lower transaction costs/Account fees than traditional banks | |
| Innovative approach means early adoption of new technology | |
| Some accounts are very good value for International payments (Revolut) and overseas cash withdrawals | |
| Easy to manage through good apps and well placed to take advantage of Open Banking |
E-Money/ Prepaid accounts
Examples: Tide, Coconut, Cashplus, Mettle
| Pros | Cons |
| Very quick set up | No FSCS protection, though other ringfencing is common |
| Easy to manage through good apps and well placed to take advantage of Open Banking | No Branches |
| Lower transaction costs/Account fees than traditional banks | Typically, no cash or cheque deposits |
| Can be easier to open with poor credit history | No overdrafts & limited opportunity for borrowing |
| Often need to pay extra for dedicated support | |
| No interest earned |
Your decision
Whatever your circumstance, we advise that you consider your options carefully, because choosing the wrong account and having to switch under pressure due to the account not functioning as you wish or as we are more commonly seeing, the bank informing you that they are going to close your account in a few days’ time, can be both stressful and disruptive.
This is not financial advice, please get in contact with our team at Freedman Frankl & Taylor Chartered Accountants and Business Advisors if you would like further information.
Note: this information was up to date at the time of writing, however due to the rapid speed of change in the banking market, readers should be aware that it may not remain up to date for very long.
