6 reasons why you might need a savings account for your business

Having the right mix of business bank accounts can help improve cash flow management. Here are six reasons why it may be worth having a savings account as part of that mix.

How many bank accounts do I actually need?

When setting up in business it can be important to separate personal finances from company money  – so you may wish to consider having at least one business transaction account.

A separate business bank account¹ makes tracking income and expenditure easier, simplifies life at tax time, and could save you time when reconciling.

Some businesses choose to have more than one account to help manage different aspects of their operation, such as tax payments. Here are six reasons why a savings account¹ could be a good idea for this and other purposes:

1. Put money away for tax payments

One day your bank balance could be looking very healthy. The next it’s Business Activity Statement (BAS) time and you have to declare and potentially be taxed on your income.

Putting a percentage of your income to one side in a savings account could help avoid the stress of ensuring you have funds available to fulfil your obligations, including any GST you owe.

You can find out more about these obligations on the Australian Tax Office website:

 

2. Monitor your spending

A transaction account generally gets used to pay suppliers and take payments. With all those transactions coming in and out, monitoring and managing expenditure alone can be difficult.

Putting money aside into a savings account could help you keep a closer eye on your day-to-day spending, and any areas for potential reduction may be easier to identify.

If you subscribe to Westpac online banking¹ you can view your transaction and savings account balances alongside each other, and moving cash between accounts can be done 24/7².

3. Make your money work for you

Interest rates on savings accounts vary, but they will generally be better than those offered by transaction accounts. Therefore, moving surplus income into a savings account could be beneficial – even if it’s just for short periods – particularly if there are no fees for making those movements.

If you’re prepared to lock your money away for a longer period, it could be worth shopping-around for a business term deposit¹ that matches your needs. Term deposits generally earn a higher rate of interest than standard savings accounts.

4. Access cash for unexpected events

Running out of cash is one of the main reasons small businesses fail. Getting into the habit of saving regularly could help avoid this. As is the case with personal savings accounts, it’s good to know you have money set aside to help cope with what life – or business conditions – might throw at you.

With funds built up in a savings account, you can see the scale of your cash reserves. This is good news if you have an unexpected expense or see something you want to buy that will help you manage or grow your business.  With most savings accounts you can access the money quickly when you need it.

5. Have a visible savings record to help get credit

Having a history of putting money aside weekly, fortnightly or monthly can help when you need to apply for a business loan, overdraft or credit card¹. It shows you have the discipline to regularly save money.  Of course, if you build up your savings enough, while benefitting from compound interest, you may not need to borrow.

6. Plan ahead for future projects and seasonal lulls

Having easy access to cash can help your business through those times when money isn’t coming in as regularly. Saving with this in mind allows you to plan for situations such as predictable seasonal cash flow gaps.

What type of savings account should I choose for my business?

There are three key factors to consider when choosing a business savings account:

 

1. Will I need immediate access to my funds? 

If you do, consider a standard variable interest rate savings account that lets you withdraw funds whenever you need them

 

2. Am I happy to lock away my funds?

If you are, consider a fixed term, fixed interest rate Business Term Deposit

 

3. Am I able to save every month and build my balance?

If you’re able to put away money most months, you may be able to find savings accounts that reward regular saving with bonus interest

 

You may also find savings accounts that are specific to your sector, such as Farm Management Deposit accounts for primary producers and savings accounts for not-for-profit organisations.

How can I compare business savings accounts?

Some aspects to consider when comparing business savings accounts include:

• Interest paid, which may vary by the amount held and by savings habits
• Variable or fixed interest rates
• Monthly fees plus the cost of moving money in and out of the account
• Minimum and maximum balances
• Ease of access to funds (online, in branch only, or restricted within an agreed term)

Visit our comparison page to compare Westpac business savings accounts, which don’t charge monthly fees or a fee for transferring funds into the account in Online Banking.