Does Your Small Business Need a Checking or a Savings Account?

Getting this wrong could be a royal pain for your business.

Getting money coming in the door of your small business is often the biggest challenge, but once you've done that, you'll face an additional hurdle you may not have prepared yourself for: Where do you keep it?

Stashing your business earnings in your personal accounts is rarely a good idea because it can lead to all sorts of tax headaches. That's why many small businesses opt for a checking account, a savings account, or both. Here's what you need to know to decide what's right for you.

How a business checking account works

Business checking accounts are designed to handle money for everyday expenses. Money you put there is easy to access, and many banks offer debit cards and checks to help you withdraw cash at a moment's notice.

These accounts are good fits for keeping money you're going to use to pay employees, buy office supplies for your business, or pay your utilities, for example. It's money you don't plan to hold onto for very long.

Business checking accounts are similar to personal checking accounts in many ways. But because businesses usually have a higher volume of transactions, their checking accounts sometimes come with greater limitations.

Personal checking accounts typically don't have any rules about how often you can move money around or how much cash you can deposit. Business accounts, on the other hand, may only allow a certain number of free monthly transactions or cash deposits before charging you additional fees.

Interest is also pretty rare among business checking accounts, but this shouldn't concern you because, again, the money you put into this account probably isn't going to be there for a long time before you're taking it out again.

How a business savings account works

Business savings accounts are better choices for those who want to earn interest on their money. The annual percentage yield (APY) is the primary draw on these types of accounts. A high APY means more interest for you over the long run.

But though there's greater earning potential here, there's a tradeoff in accessibility. Few business savings accounts offer checks or ATM cards you can use to directly withdraw funds. When you want to access this cash, you often have to transfer it to a checking account. And some banks impose restrictions on the number of monthly withdrawals you can make without paying a penalty.

These accounts can still be a good choice, though, if you're trying to save up to hire someone new or to buy an expensive piece of equipment for your business. Your money will be safe there, and you can leave it in the savings account as long as you need.

Which one is right for you?

Whether a business checking account or savings account is a better fit for you depends on what you plan to do with your money. And it's possible you could use both types of accounts. If you decide to get one of each, it's often useful to get both accounts at the same bank so you can easily transfer funds back and forth. But this isn't a requirement.

When deciding which bank to go with, there are a few things to pay attention to, including:

• Monthly maintenance fees: Many business bank accounts have monthly maintenance fees, which are fees you pay to own the account, though many will waive these fees if you meet certain requirements.
• Minimum balance requirements: Some bank accounts have minimum opening deposit requirements or ongoing balance requirements to avoid maintenance fees.
• Online and mobile tools: You should be able to easily view your balances and transfer funds between your accounts via a web browser or a mobile app.
• Customer service: You may not deal with your bank's customer service that often, but you want it to be friendly and helpful when you need assistance.
• Branch locations: Businesses that plan to deposit cash often will often find it easiest to work with a bank that has a branch location nearby.
• FDIC insurance: Most bank accounts should have FDIC insurance to protect your money in case the bank were to fail.

Beyond that, the factors you'll want to look at vary depending on the account type you use. Review the information above and take your time deciding which account is right for you. If you don't like the account you choose, you can always change your mind later. But this can be a pain, so you should try to get it right the first time.