A guide to bank fees for small businesses
Keeping on top of your outgoings is essential for any business, but with so many fees associated with business bank accounts, it can be hard to keep track. Here's everything you need to know about business bank account fees. We take you through what fees you can expect on business bank accounts and why they’re necessary.
Why do business bank accounts charge fees?
Unlike personal accounts, business bank accounts may see hundreds or even thousands of transactions every day, which means more admin on the bank’s side. Businesses generally have various types of transactions going in and out of them, which requires more support staff and other administrative costs than an average personal account.
Business bank accounts also offer more services and benefits than consumer banking, including accounting tools, higher transaction limits, access to credit, spending insights and more robust legal protection.
Why it matters for small businesses
Every business has different priorities that dictate which business banking provider they choose, but charges are usually one of the most influential factors. Few small businesses can afford to simply disregard fees, big or small, so which account you choose will often depend on how much you can save.
Thankfully, it’s possible to compare business bank accounts based on the types of fees they charge. Here’s a list of the most common types, so you know what to look for before you begin comparing.
Common types of business bank charges and fees
Keep an eye out for these fees when you’re comparing business bank accounts.
Monthly maintenance fees
These are standard fees that the bank charges you for holding the account. While these are not normally found in consumer bank accounts, they’re common in business equivalents. However, some newer business bank accounts don’t feature monthly fees or will have a no-fee period when you sign up.
Transaction fees
Transaction fees apply when you use your account to make or take payments. They exist partially because business accounts are generally expected to experience constant deposits due to customer payments, but they also protect them from risks and allows them to make profit – just like any other business.
If you’re trading in other countries, you’ll be charged a foreign transaction fee. This will be applied whether you’re sending or receiving money and can differ based on where you’re moving the money to or from.
These types of fees often vary depending on the types of transactions they are. For example, you might not be charged for paying your business broadband bill, or the bank might charge for cash transactions but not e-payments. Remember that there is a difference between transaction fees and deposit/withdrawal fees, which is when you’re moving the money yourself.
Bank transfer fees
Transfer fees are charges you incur if you transfer money from one account to another. This is different from a transaction fee, which refers to the income of your business. These are often free if you’re transferring between two UK-based banks.
Withdrawal and deposit fees
Withdrawing or depositing money yourself sometimes charges this kind of fee, though banks will sometimes waive the fee if you’re doing so while you’re in a bank branch.
If you’re depositing a cheque, you’ll also be charged a small fee. If, for any reason, you request to not pay a cheque you have issued, a stoppage fee will also apply.
Overdraft fees
Business account overdraft fees differ based on how much of your overdraft you’re using. Business overdrafts often offer tens of thousands in limits, which can free up cashflow for your business and acts as another form of borrowing.
Keep in mind that any overdraft you use should be authorised and agreed with the bank. Unauthorised overdrafts can incur much higher interest fees, and you might be charged a return item fee, where the bank has stopped a payment you can’t afford.
Minimum and maximum balances
UK business bank accounts often don’t include minimum balances fees, though it varies from bank to bank. Most mainstream business bank accounts are designed for small businesses and sole traders, meaning that they’ll frequently have limits on the amount of money you can hold in your account at once. Once your business becomes a scale-up or you begin hiring employees, you might need to seek out a different type of account.
Account closing fees
For UK business bank accounts, the only instance in which you’ll be charged an account closing fee is if you have outstanding charges that you haven’t settled. This includes any overdrafts or fees for services you’ve used during your time with the account. You also won’t be able to close your account if it still has funds in it.
Service fees for additional services
Business bank accounts will usually include additional services to make signing up more appealing. These include:
Accounting software
Deposit protection
Mobile apps
Credit and borrowing
Tax calculation and filing
Cashback
Loyalty rewards
As these features are considered perks of joining the account, you won’t be charged extra for the majority. However, if you’re taking a loan through your bank account, you’ll have to pay the interest rate set when you apply (just like any other type of bank loan).
How to compare business bank fees
With so many business bank account options out there, comparing products is an essential part of the process. Here’s what you need to know about comparing accounts while keeping an eye on fees.
Analysing your business banking needs
Every business is different, so finding a one-size-fits-all bank account can be difficult. However, by analysing your banking needs, you should be able to find one that meets your needs.
UK accounts often offer a period with no monthly fees or even no monthly fees at all, and free transfers between UK banks are also common. As a sole trader or a business just starting out, perks like this can save money at a time when you need it the most.
If you’re selling outside of the UK, keep an eye on external transaction and transfer fees, as these can rack up if you’re not careful. Similarly, if you’re expecting the majority of your business to come in the form of digital transactions, look for an account that doesn’t charge fees on these.
Evaluating fee structures of different banks
Most UK business bank accounts have a number of tiers that are suitable for businesses at different stages of growth. Standard accounts tailored for sole traders or early-stage businesses might offer no account fees but could be unsuitable for a business looking to scale up or that is already employing multiple people.
A good example of this is Revolut, which offers four different tiers, ranging from Free to Enterprise. These accounts often offer tailored pricing for larger businesses, meaning you can upgrade the account as your business expands.
Taking into account how your business will perform in the future is obviously an important part of any business, and having a business bank account that you can upgrade as you go might save you some time as opposed to switching to a different bank.
Tips to minimise business bank fees
Watch out for hidden fees
Many UK business bank accounts now advertise on the basis that they don’t have hidden fees, but you should still be wary of any fees by checking out transaction guidelines on the website of any bank you’re joining. With many banks now offering a fee-free period upon signing up, it’s easy to be caught out when this period ends and you begin getting charged.
Can I negotiate fees with my business bank?
This will depend on the type of account you’re looking for. Standard business bank accounts aimed at SMEs and sole traders will generally have flat fees that can’t be negotiated, but larger companies should be looking for more bespoke options.
Stick to online banking
Choosing a bank account that doesn’t charge fees for online transactions or transfers means you can avoid most fees if your business runs digitally. While this won’t work for all businesses, making sure you have a digital payment solution, even if you’re selling in-person or at a physical location, means you can avoid being charged for depositing cash.
Frequently Asked Questions about business bank charges and fees
What are the most common business bank fees?
As previously mentioned, many UK business bank accounts now pride themselves on not charging hidden fees and try to make the user experience simple and easy to understand. However, you’re still likely to be charged some or all of the following:
• Monthly maintenance fees
• Transaction fees (including foreign transactions)
• Bank transfer fees (includes ATM and cheque fees)
• Overdraft fees
• Service fees
How can I avoid monthly maintenance fees?
Monthly maintenance fees have traditionally been a way for banks to cover the cost of running the account, but there are plenty of banks that now waive them, at least for a certain amount of time. If you don’t want to pay monthly fees, look for an account that doesn’t charge them – these are often introductory or ‘free’ accounts for businesses that are just starting. If you choose one with a fee-free period, set a reminder for when it runs out so the charges don’t come as a surprise.
Are there banks that offer fee-free business accounts?
Business bank accounts with no fees whatsoever aren’t common; even the accounts labelled as ‘free’ will usually have some kind of transfer fees. You can mitigate this by choosing an account that has as few fees as possible, one that offers cashback or a good interest rate.
Fees are something that no one can avoid, but analysing what your requirements are as a business owner can help you find an account that offers the balance you need. By conducting research and comparing as many accounts and banks as possible, you should be able to find a solution that offers a mixture of low fees, a good interest rate, strong customer service and features that will help you as a business owner.
SmallBusiness.co.uk provides advice and useful guides to UK sole traders and small businesses. Our goal is to help owner managers and entrepreneurs to start, run, grow and succeed in business, helping turn your business idea into a profitable business.
