Picking a bank account

ox_inside_LargeThey may be giving a pretty good impression of not wanting your custom, but if you have, or are starting a business, there will be plenty of banks offering you incentives to join them. Ideally, of course, a banking relationship should be for the long term – as your bank gets to know and understand more about your business it should be in a position to provide you with the services you need when you need them.

But that doesn’t mean you have to stay loyal – if you can get a better deal elsewhere, you should move on. Of course, it’s always worth negotiating with your existing provider first, but in a competitive market you need to be sure you are getting the most for your money.

Most banks have special deals and incentives for new customers. Naturally, these offers are aimed mainly at new businesses but in most cases an existing company will be welcomed with a similar deal. And while the start up incentives can prove to be valuable, remember that it’s in the long term that the true worth of your bank will be tested.

When looking at the bank accounts on offer, here are the factors you need to consider:

Bank charges

With the vast majority of business current accounts, your bank will levy transaction charges. So every time you pay in or out a cheque, or a direct debit, or cash, a fee will be charged. These fees vary dramatically – it’s generally less expensive to pay a bill electronically than by cheque, for example – and they also vary from bank to bank. So if you’re a mainly cash-based business, for example, then you’re going to need to choose the bank that has the lowest fees for handling cash.

With most banks, new account holders – whether new businesses or companies switching from a rival – will be given a period of free banking. This almost always is just the basic transaction costs – money coming in and money out – you’re not going to get international payments or interest-free overdrafts.

Bear in mind also that some accounts levy a monthly management charge as well. While the idea of having to pay for an account when you could go to a rival for nothing may seem strange, bear in mind that the charge will probably give you discounts on your daily banking costs, which could end up an even bigger saving.

Interest

It’s important here to work out what sort of customer you’re going to be. If you think you’ll mostly be in credit, you’re going to want to look for the bank that pays the best interest. If, on the other hand, you’re running your business from your overdraft, then it’s the lowest amount of interest you’ll pay that’s the most important. It’s unlikely that the same bank will offer both, so choose wisely.

Some banks offer a ‘sweep’ facility’ on current accounts. This means that if your balance rises above a certain figure at any point, the funds above that figure will automatically be swept into a separate deposit account that pays higher interest. Then, when money starts to dwindle, the bank will automatically again place funds back into the main account from the savings.

Overdraft facility

If you’re a start up you’re going to have to really prove the potential of your business before you are granted a respectable overdraft and even if you’re established questions will be asked. At the moment, banks are reining in their overdraft lending and you’ll have to be a very good customer to get a good deal.

There are signs, however, that some institutions are starting to open up once again, so it’s worth phoning around to see what’s on offer.

Access

Again, this will depend on the kind of banking you need. If you’re taking lots of cash or cheque payments, you’re going to need a branch close by where you can pay in your takings. On the other hand, if most of your income comes in the form of bank transfers, this is far less important. Virtually every bank now offers online banking and almost all offer a telephone service too, although their hours and service offerings vary. Banking online wherever possible is usually the cheapest option.

At a glance: Bank incentives

(Last updated 23 September 2009 and, where applicable, we have given the incentives applicable to the accounts with the lowest turnover requirement and where there is no initial monthly fee)

Abbey/Santander

  • Free day-to day banking for life
  • Interest of six per cent paid on credit balances (limited)

Alliance & Leicester Business Banking

  • Free banking for life up to £1m turnover
  • UK call centre 24/7 telephone banking
  • Free legal and tax advice
  • Use the Post Office for payments
  • Other business services such as insurance, loans and online advice

Bank of Scotland

  • 12 months free banking
  • No overdraft arrangement fee for first 12 months
  • Barclays (Business start up package)
  • 12 months free banking
  • Support outside office hours
  • Access to seminars
  • Free credit management tool
  • Free data storage

HSBC

  • 18 months free banking
  • 12 month fee-free business credit card
  • £75 Google adwords voucher
  • £50 discount on web build package
  • Access to business resource directory

Lloyds TSB

  • 18 months free banking (six months for account switching)
  • Free Sage Business software and support
  • Free business guides

Natwest

  • Two years free banking
  • Free online start-up course
  • Free business planning software
  • Free guides

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  2. Lloyds pledges to pass on rate cuts
  3. BRC calls for more bank help
  4. Abbey launches time deposit
  5. Abbey launches new Business Bond

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