Business checking vs. personal checking: How they compare

All checking accounts might seem to be alike. But a business checking account may offer capabilities that aren’t available with a personal checking account.

Plus, you always want to keep your business expenses separate from your personal ones, says Pam Horack, certified financial planner at Pathfinder Planning in Lake Wylie, South Carolina. That way, you can have a clear record of all transactions.

Not separating a personal account and a sole proprietorship or a business registered as a “doing business as” (DBA) can cause you not to know if you’re actually making money or not, Horack says.

Plus, business banking may offer personal liability protection since your funds are being kept away from your personal accounts, according to the U.S. Small Business Administration (SBA). With all business expenses in one place, it’s easier to look out for errors.

The difference between business and personal checking account

While business and personal checking accounts are both transactional accounts, designed for day-to-day finances, they differ in a few key ways. Some characteristics unique to business checking accounts include:

• Free transactions may be limited.
• Cash counting or coin order fees may apply.
• They usually have more advanced payment methods, such as merchant services — which is the ability to accept credit card payments.
• They may have higher monthly service fees. Or the fees on business checking accounts might be more difficult to waive than they are on some personal checking accounts.
• Most come with a line of credit option.

How to decide which type of checking account is best for you

Business owners will want to compare the key features between the two types of accounts. Business banking helps protect your business transactions from getting mixed up with personal transactions, and it lends your business greater professionalism.

Look at the following fees or features when shopping for an account:

• Minimum balance requirements
• Monthly service fees
• Banks offering a cash bonus to open an account (this bonus may be available for new customers only)
• Minimum deposit required to open the account

Here are some fees or restrictions that usually only apply to business checking accounts, and not personal checking accounts:

• The number of free transactions allowed — and the price per transaction if you exceed the free limit
• The amount of cash that’s counted for free — and what cash counting fees would be if you exceed the free amount

Business checking accounts give a business owner options and features that aren’t usually available with personal checking accounts, including advanced payment methods and lines of credit.

Some banks also offer checking accounts for small businesses specifically.

Making the switch from personal to business

Just as it’s better to separate an emergency fund from your day-to-day checking account, it’s usually better not to have business transactions go through a personal checking account.

For some business models, it may even be a requirement to have a separate business account.

“While there are many legal entity structures for businesses, the sole proprietor is the only one that can be set up with an SSN [social security number] and therefore can open a personal checking account,” says Lynn Heitman, executive vice president, business banking segment leader at U.S. Bank.

Commingling your personal and business transactions in the same checking account can also complicate the bookkeeping process and make tax time a nightmare.

To open a business account, you’ll likely need a federal employer identification number (EIN). Depending on the bank, you may also need other business information, such as:

• A Certificate of Good Standing
• Assumed name certificate (to certify the name the business operates under)
• Business license
• Beneficial owner information, if you own the business with someone else
• A business plan

Once you’ve gathered all the necessary documents, you can open a business checking account much in the same way as you would a personal account. This can be done by going to the bank’s website or a local branch.

Who needs a business checking account?

A business bank account can help you stay legally compliant, according to the SBA. Having a business checking account can help make the following features available to you:

• Entitlements: These allow trusted users or advisers — such as an office manager or an accountant— to access the account, says Heitman of U.S. Bank.
• Positive pay: This is a fraud prevention system available at some banks for business customers. It uses a list of checks to help in the check verification process. A check that doesn’t match this list will likely be flagged.
• Debit card for non-account signers: This could be a way to get an employee a debit card for expenses. You may be able to set limits on this debit card.
• Money movement options: Merchant services accounts can help businesses accept credit card payments. Business accounts “typically have the potential for digitally enabled higher money movement or custom limits for payment transactions,” Heitman says. This can include automated clearing house (ACH) transactions or digital single or batch wire transfers, Heitman says.

Bottom line

While in some cases it’s possible to perform business transactions with a personal bank account, having a separate business checking account offers numerous benefits. It helps protect your transactions from getting mixed up, lends your business greater professionalism and provides access to useful business tools, such as advanced payment methods and lines of credit.

Make sure to shop around for a business checking account that comes with all the features you need and charges the least in fees.

– Bankrate’s René Bennett contributed to an update of this story.