Why you don’t have to put up with them anymore
If you’re starting out as a freelancer or company owner, you may find it difficult to separate your personal and work finances in your main bank account.
This can make it harder to keep track of your earnings, manage your costs, and get everything ready for that all-important tax return in January.
That’s why many self-employed people choose to open a business bank account
If you own a public limited company, you are legally required to have a business bank account. If you’re a freelancer or a sole trader, you can continue to use your ordinary retail bank account.
But here are three quick reasons you should consider opening a business account too:
- It’s easier to manage your business finances and monitor your payments.
- You can build your business’s credit rating, which boosts your chances of getting a loan to pay for staff or new equipment.
- You might get a more-generous overdraft limit to help keep you afloat during tough times (although this is not guaranteed).
The main flipside to business bank accounts?
The fees
There are two main ways that banks collect revenue: fees, and interest on loans.
Banks can charge fees for many different services, from unarranged overdrafts and late payments to currency conversions and ATM withdrawals abroad.
At your average bank, fees for business accounts can be high
As fees vary widely, it’s not easy to give you an accurate estimate of the average fees you can expect with a business bank account. But MoneySavingExpert suggests that, at a bank in the UK, you should expect to pay around £6 for the monthly fee, £0.70 per £100 of cash deposits, a £0.30 fee for transfers, and £0.50 for cheques in/out. Then there are fees for international payments, which we’ll get into a bit later in this blog.
Bank fees are often hidden away in small print, at the bottom of a long text of T&Cs, making it harder for business owners to understand how much they’ll be charged for different transactions.
So let’s take a closer look at the three most common fees and how they might impact your business
Non-Sterling payment fees
Many banks will charge you a Non-Sterling Transaction Fee of approximately 3% when you use a debit or credit card abroad, or make any transaction in a foreign currency. They charge this (1) because the law allows them to and (2) most customers either won’t notice or won’t be concerned by what appears to be, at first glance, a harmless, minor charge.
But these charges can quickly add up.
How might your business be impacted by Non-Sterling Transaction Fees?
- If you rely on products that you can only pay for in a foreign currency, the Non-Sterling Transaction Fee could end up costing you £100’s per month.
- This fee applies to the value of a purchase or withdrawal made via a corporate card, business debit card or a company card.
- When abroad, if you make a purchase or withdrawal via cash, you may have to pay a cash fee as well.
- There is often a minimum charge for these fees. So you could end up being charged the equivalent of about £2 or £3 for a coffee that costs €3!
Example:
Each month, you order 100 different items from an EU-based supplier. Due to the nature of your business, you can’t buy these items in bulk, so you have to order them individually. If the cost of each item is equivalent to £20, and the minimum Non-Sterling Transaction Fee for each transaction is £3, your bank charges you £300 per month for £2,000 of transactions. That’s a real transaction fee of 15%!
To avoid the Non-Sterling transaction fee, don’t make any transactions in foreign currencies. Of course, that’s easier said than done when you’re travelling abroad.
Or, better still, you can choose a platform that doesn’t charge this fee.
Poor currency conversion rates
This is harder to quantify as a ‘fee’, but banks will set their own exchange rate for converting one currency to another. It will usually be much less favourable than the rate you see on Google Finance. In other words, there will be a hidden markup, the methodology behind which few people outside of banking circles will ever understand.
Why poor exchange rates can be very costly for businesses
- If you regularly receive income from clients in the EU, the value of your payments in £ will fall if the £ weakens against the €, and your bank’s conversion rate will have a disproportionately negative impact on your income.
- This is due to a greater Exchange Rate Spread, which is the difference between the buying and selling rate of the currency.
- When UK banks face higher costs due to unfavourable exchange rates, they may offer even poorer conversion rates to their customers.
You can protect your business from unfavourable exchange rates by choosing a digital banking platform that allows you to hold funds in multiple currencies. This enables you to wait until exchange rates have improved before converting these funds into your local currency.
Monthly fees
It’s normal for high street banks to charge a monthly fee for a business account, although many offer a free ‘grace period’ of up to 6, 12 or 18 months.
- As mentioned above, with monthly fees typically around £6 a month, these are obviously unlikely to have a significant impact on your business finances.
- Some banks may offer premium business accounts with higher fees but more
- account features, such as higher transaction limits.
- Some will waiver the monthly account fee if you keep your account balance above a specific threshold.
You should think of the monthly fee as a general maintenance fee that you pay to keep your account features running smoothly. But compared to digital banks with similar monthly fees, high street banks generally offer poorer value for money in terms of payment options, currency fees and accounting integration.
Why do high street banks charge more?
Old infrastructure
- Many of the UK’s big banks are stuck with ageing legacy payment systems that make it harder for them to innovate and take advantage of new technologies.
- In contrast, digital banks can allocate much more money and resources to building agile, flexible platforms that provide a seamless user experience.
Lack of investment in automation
- High street banks often rely on outdated manual checks, which take significantly longer and are often subject to delays. This hinders productivity and is costly.
- Digital banks are embracing automation, in everything from financial budgeting tools to credit scoring, fraud detection and AI-powered accounting
Reliance on physical branches
- Most of these banks still have a large number of physical branches which are expensive to run.
- With much lower overheads, digital banks can afford to pass on their savings to their customers.
10 ways Banct’s digital banking platform can help you grow your business
Get up and running quickly at no cost
We aim to open your account within 24 hours. There’s no account opening fee.
Make/receive payments flexibly and cheaply.
Give your clients more payment options to keep them happy. There are no hidden fees
Hold funds in multiple currencies
You don’t have to convert everything into £ when the conversion rate isn’t favourable.
Trade globally
Expand your business into new markets. Borderless business is here.
Get deeper insights into your ingoings and outgoings
Let the Banct app keep you up-to-date with all your business activity.
Save money on currency fees
Pass on your savings to your customers.
Hedge against currency volatility
Lock-in the best conversion rates for up to 6 months.
Get to know your business better with AI-powered accounting
Say goodbye to boring manual accounting and tedious Excel sheets
Integrate all your accounting and invoicing
Save time and have everything you need in one place.
Convert currencies 24/7
Benefit from real-time exchange rates.
With Banct:
- You can hold funds in up to 34 currencies and pay in up to 37 currencies.
- There are no hidden fees or pesky currency conversion charges to worry about.
- When you pay an overseas client, you’ll always know exactly how much it will cost you.
