Though it is not mandatory to open a savings account in your business name, it can prove to be useful for the business in the long run. Let’s understand more about the business savings account and how it is different from the current account.
Similar to an individual’s account, a business can have its savings account as well as the current account to serve different purposes. A business savings account (BSA) is useful in protecting your funds and save them for future requirements. Similarly, a current account is used to take care of the day-to-day transactions of the business.
What is a Business Savings Account?
A business savings account allows you to save a part of your earnings for utilising it for future business requirements. It acts as a quick source of funds whenever you need it while letting you earn interest from it. Even if you deposit small amounts regularly, it can help you build a good corpus over some time.
Experts and business advisors recommend that your business must save 10% of the income regularly, which can be used for emergencies or for growing your venture. A savings account in your business name can help you by letting you park the funds in a separate account.
Benefits of Keeping a Savings Account in Your Business Name
Earn Interest on Your Balance: The best benefit of savings account in your business name is that it helps you earn interest on the balance which is not permitted in a current account. Thus, you can grow your funds while running your day-to-day expenses with a current account.
Acts as a Backup for Crisis Situations or Tax Payments: The money in your savings account is in liquid form and can be quickly made available to handle unexpected situations or monetary crisis. Hence it acts as a financial cushion for the business in the long run.Also, the money can be used to plan taxes at the year-end. If a large sum is due to be paid, the money in your savings account can lessen your tax burden to some extent.
The Funds Stay Protected: The amount in your BSA is insured by the Government for up to $100000 if the bank is registered under Canada Deposit Insurance Corporation (CDIC). Hence the money stays completely safe. Moreover, this insurance is for every savings account in your business name. Thus, you can open multiple savings accounts to secure your corpus.
Helps Improve Business’s Credit: As a part of your business portfolio, it highlights your ability to manage your finances and pay off business loans in the future, thereby improving your business’s credit.
Business Savings Account Vs Current Account:
A savings account is focused on building a good financial cushion for the business, whereas a current account is a basic need of any business to carry out the daily transactional needs smoothly.
A current account generally allows unlimited transactions, whereas the number of free transactions may be limited in the case of a savings account.
Since there may be some delays in your everyday payments and receipts, many banks allow an overdraft facility with current accounts to handle any temporary financial deficit. A savings account may not provide this facility as the requirements are different in this case.
A current account does not let you earn interest on the balance, whereas a business savings account lets you earn a fixed interest rate on balance in the account.
BSA – A Financial Shield for the Business
A savings account in your business name acts as a backup and shields your business from any financial distress. Also, it showcases the financial strength of the business and enhances its credibility. Keeping these points in mind, it can be beneficial to open a savings account in your business name. However, make sure you check the fees and transaction limits before opening an account. Most importantly, ensure the bank is registered under CDIC for complete protection of your funds.