Should I Separate My Personal and Small Business Bank?
As any small business owner knows, separating your money between personal and business checking accounts is the best practice to ensure that your business operates smoothly and your legal and tax obligations are fully met. But this also raises the question of whether it is more advantageous to keep both checking accounts at the same bank or to keep the accounts at separate banks.
There are a number of advantages to using the same bank for both checking accounts. Chief among them is the ability to transfer funds from one account to another at little or no cost. Such transfers are completed much faster than can be achieved when more than one bank is involved. But other advantages are equally enticing.
For one thing, some banks offer free personal checking to customers who also have a small business checking account. This can save you quite a bit of money in banking fees. But beyond the savings, having both accounts at the same bank can also make it easier to borrow money for yourself or your business. You strengthen your relationship with the bank with every account you hold there, so look for opportunities to open new accounts, such as savings accounts, certificate of deposits, money market accounts, and credit card accounts.
Banks are risk averse, so showing the bank how well you handle money on both the personal side and the business end of your life helps make the case that you’re a safe credit risk. Multiple accounts can also qualify you for lower interest rates, additional free banking services, and higher credit balances.
Many online banking tools accessible through your small business checking account can also be used with your personal checking account, if both accounts are at the same bank. This can be very helpful to your business accounting if some things, such as business lunches and travel, were paid for through your personal account but need to be applied to your business expenses even if you didn’t actually reimburse yourself.
You can also easily arrange automatic transfers from your business checking to your personal checking instead of making trips to the bank to pay yourself. Often this option is free, whereas automatic payroll deposits to other banks aren’t. It’s just one more way to reduce your banking costs while freeing up more of your time and ensuring your private money stays separate from the business account.
There is one important caveat to this, however. The FDIC will only insure up to $250,000 for a single owner of multiple accounts if the accounts don’t meet strict category definitions. In other words, accounts in the name of a sole proprietorship are considered by the FDIC to have the same owner as the personal checking account, thus the total insurance coverage is only $250,000. However, if the small business is an association, a partnership, or incorporated, the business account is considered to be in a separate category from the personal account and therefore the effective FDIC coverage is doubled.
If you have a sole proprietorship, to ensure FDIC coverage of all of your deposits, you should keep your personal and business checking accounts at different banks if the total sum of both accounts will exceed $250,000.
