Where Should I Open a Business Bank Account?

Every business needs a bank account. There’s no getting away with it. Even if you don’t want credit, you’re going to need to buy items and pay for products and services. You might also have to pay salaries and rental on an office.

Banks and other similar financial institutions offer a safe place for you to keep your money, often where it can earn interest. They also offer credit cards, debit cards, check accounts that come with a check book (although checks do seem to be losing favor internationally), and a range of other financial services for large and small business owners, as well as corporates, and even individuals.

But the question is how to choose the best bank for your business?

What are the Options?

Banks and other financial institutions come in a variety of different guises, all offering many similar but varied products. The main options are:

• Major USA banks that operate in multiple states,
• Local banks that operate within limited areas within the USA – often in just one state,
• Internet and online banks,
• Credit unions.

All banks in the US are regulated, however the regulations are sometimes as varied as the products are, and sometimes even between cities. The central system is run by the Federal Reserve, and they list many of the USA’s commercial banks on their website, www.federalreserve.gov/

USA Banks Operating in Multiple States

These are the big boys, many of which have hundreds of branches all over the country. There are scores of them to choose from. Just one example is HSBC, which claims to be the world’s biggest bank. Advantages of banking with institutions of this caliber include the fact that they can handle multiple cash management needs. They also have the propensity to cope with more complex banking requirements.

Usually if customers deal with a lot of money and ensure that minimum balances are met, they will get personal support from one particular bank manager. But for small businesses that don’t deal with vast amounts of money, local banks are often a better bet.

Local Banks

Unlike many other Western countries, the USA offers individuals and businesses what is essentially a community option when it comes to banking. You don’t have to be turning over mega-bucks to be able to open an account with one of these smaller, so-called community or local banks, and be given the opportunity of a dedicated manager who will help you manage your affairs.

Investigate which local banks operate within your area, and find out exactly what they can offer you. You’ll find that their costs will generally be lower than the big banks, and service will invariably be more accessible.

Online Virtual Banks

While their numbers are growing, and they have their advantages, the major disadvantage of Internet banks is that you can’t deposit cash or checks at a bricks-and-mortar building, or at an ATM. You can though deposit money into most of them – as can other people – as long as you do this electronically.

It’s not ideal for a business though, because if you have cash, you’re going to need to deposit it into another bank account and do a money transfer or write out a check. If someone gives you a check, you will have to post it (snail mail) to the virtual bank.

The advantage of banking with a virtual institution is that their overheads are a lot lower. Think about it; no buildings, no tellers, no furniture, no physical maintenance… For this reason their fees are a lot lower and they are able to offer high-yield savings account options. But for business, it’s less than ideal.

Credit Unions

The origin of credit unions can be traced back to the mid-19^th Century in Europe. But the first US credit union was only established in the early 20^th Century – in New Hampshire.

The original idea of creating credit unions was to give those who were not able to access banks, a means of borrowing money – mainly laborers whose only other option (at the time) was to turn to unscrupulous moneylenders. Not surprisingly the banks initially opposed the idea, but they have been a legal option since the Federal Credit Union Act was passed in 1934. Within three years, 6,400 credit unions had been formed; and today there are more than 9,500 of them throughout the US.

Like the banks, credit unions are also regulated, and they offer a really good option for small business owners. But a major difference is that banks are in the business for profit – to make money – while credit unions have, from the very beginning, been member-owned cooperatives that are exempt from taxes and not for profit.

A main advantage for consumers is that credit unions pay higher interest rates to users than banks do, and charge lower interest on the loans that they offer. Another advantage is that when you open an account, a credit union requires a much smaller deposit (or share as they call it) than a bank requires.

On the down side, credit unions don’t have as many branches or ATMs as even the local banks have. This is not necessarily a disadvantage, since “shared branches” offer the same facilities with no extra cost.

So weigh up all the options and apply them to where you live. Then make an educated decision that you believe will benefit your business.