As individuals we are encouraged from a very young age to open a savings account so that money can be put away for future needs. So, the key question is why do businesses not adopt the same approach and use a business savings account?
Speaking to several business owners some of the common reasons of not having a savings account are because spare cash is limited, locking up money in an account that is difficult to access is not viable and managing multiple accounts can cause issues. However, business bank accounts are now very flexible which makes it very easy to segregate money in and out of savings accounts by the month, by the week, by the day and by the hour.
They key benefit of having access to a business savings account is taking advantage of a better interest rate which in turn increases the value of investment being put aside. One important recommendation is to keep a good track of cash flow and accurately forecast expenditure versus income. This will ensure that any additional funds can quickly be transferred to savings and can also remain in the account for a longer period rather than it having to be quickly moved to be used for bill payments.
Of course, the fact that funds can quickly be moved from a savings account into a normal account for paying an unexpected bill is also beneficial.
We have spoken a lot about flexibility and the fact transferring money is made easy through the most common type of savings account, also known as an instant access account. However, there are also some alternative options available.
Firstly, there is a fixed term account which is used when money transferred into it will remain in the account for a set-period and can only be accessed when this time frame has lapsed. This is ideal for a business that is comfortable with cashflow levels and knows that they won’t need access to the savings. This type of account yields the best interest rate so offers a higher level of income.
Secondly, there is a hybrid savings account more commonly known as a notice savings account. It will offer better interest rates compared to a standard savings account but less than a fixed term account. You can withdraw money at any time but the process to extract the money is not instantaneous but will involve an agreed notice period.
In conclusion, there are a number of reasons why a business should use a savings account. It provides good returns and excellent flexibility. Access to money is easy, there are no restrictions on minimum or maximum contributions and withdrawals can be easily planned.
If you have questions or need some accountancy help, please call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk. You can also book a free call with Yarka – https://calendly.com/yarka-ssa/20min
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