Business Bank Accounts For Small Businesses And Freelancers

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Whether you’re a freelancing guru or someone who has just started out on their own, the one thing you’ll need to keep in mind as you manage finances is a bank account. What, where, and how? We’ve got you covered! Read on to find out more about banking for freelancers!


Working for yourself can have many benefits. From working your own hours, and being your own boss to not needing to seek permission from upper management, to extra free time – many freelancers enjoy being in complete control of their businesses and lives.

As with any advantage though, there are some drawbacks to think about. One of the main issues that freelancers or self-employed people face is managing their finances. Whether you’ve been freelancing for over a decade or are a newbie, first things first, you’ll need a bank account.

Now the questions arise…

  • Do I need a separate bank account?
  • What type of bank account?
  • Which bank?

Well, we’re here to help! We’ll walk you through the different types of bank accounts, what to look for when deciding on one, how to open an account, and more.

As a freelancer, do I need a separate bank account?

Although it’s not mandatory to have separate bank accounts for your personal needs and your freelance business, it’s highly recommended!

Hint: You need a separate bank account if you are operating your business as LLC.

Having all personal and freelance expenses and income together will mean that your business expenses will be mixed with your day-to-day expenses such as your electricity bill – this will translate into difficulties come accounting time. 

Having separate bank accounts will be useful to complete tax returns or to prove to the tax office that everything is well recorded in case of an audit.

Creating a business bank account shouldn’t be complicated but sometimes it comes with higher fees. In some countries, opening a second personal account just for freelancing purposes will work but in other countries, for example in Germany, you will need a business bank account for your freelance business. 

Benefits of having separate bank accounts (personal vs business):

  • Easier for your accounting
  • Quicker for tax purposes
  • Clear separation of what your business is doing
  • Adds professionality in front of clients


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Understanding business bank accounts

Before we get into what type of business bank account you need, let’s take a look at what a business bank account is exactly and what benefits it can provide you as a freelancer.

A business bank account is a bank account that exists solely for business-related transactions. In addition to the fact that no personal payments can be made from this type of account, all payments that can be made are done so in the name of the business. 

Benefits of a business bank account:

The benefits of a business bank account include:

#1 Financial protection

Having a business bank account allows you to stay protected in case your business is ever audited by the tax authorities in your country. Plus, if you’re ever having trouble repaying debts, your personal account won’t be in trouble. 

#2 Makes you seem more professional

If you’re using your personal account for transactions with clients, they may assume you just got started as a freelancer or you don’t believe your business is going to last, or that you are simply too lazy to put in the effort to establish your freelance business as a legitimate entity.

Having an account in your business’s name makes you look more professional and shows that you take your business seriously and that others should, too.

#3 Improved organisation

A business bank account allows you to separate personal and business finances – something that is highly recommended if you’re a freelancer. 

With a separate business account, you always know exactly how much money you have and can easily monitor inflows and outflows as well as assess your business’s financial condition. This allows you to stay organised and avoid any inadvertent overspending.

#4 Makes doing your taxes easier

A business bank account makes tax-time less painful. Because your personal and business expenses are separated, you won’t have to spend hours figuring out which ones are personal and which ones are liable for returns.

Types of business bank accounts available

The most common business bank accounts available include:

  • Business checking account: This widely used form of account is perfect for freelancers looking to put in money, withdraw cash, make payments and more. There are very few restrictions on a checking account and is generally a good option to keep the money you need to cover your business expenses.
  • Business savings account: This type of account is good for when you want to store extra money that you don’t plan on using in the near future. You even have the opportunity to earn interest on your money and let it grow in value. 
  • Business CD (Certificate of Deposit) account: This account is a fixed-rate business savings account that pays you a fixed interest rate on money held for an agreed upon period of time. The time could be anywhere from a few months to a few years. Keep in mind that you’ll need to pay a steep fine for taking money out of your CD before your term is up.
  • Merchant account: A merchant account is a good option for freelance businesses that accept debit and credit card transactions. When a client pays you, the money goes straight into your merchant account and then automatically transferred to your other business bank accounts once it has been processed. Note that there are setup fees involved for this type of account as well as transaction and early-termination fees.

💡 Always read the fine print before signing up for any type of account. Otherwise, you could end up costing yourself a lot of money.

What should you look for when selecting a bank account?

From fees and interest rates to customer support and online features, there are lots of factors to consider when selecting a bank account for your business. Some of the most important ones that you want to look for include:

#1 Internet and phone banking

As a freelancer, expect to conduct the majority of your transactions online. Having a bank account that offers superior online and phone banking services would therefore be beneficial.

#2 Interest rates 

This one’s a no-brainer. Compare available options and choose a banking system that offers competitive interest rates in case you need credit for starting/improving your business.

#3 Fees 

As a freelancer, you can expect a fair amount of client bank transfers. But these are not always cheap. Consider the transaction fees you’ll be charged when receiving payment from a client. You might also need to take note of fees such as monthly maintenance fees, overdraft fees, ATM fees and more.

#4 Limits 

Another important aspect to look at are bank limits. This refers to the maximum amount you can withdraw, transfer, send or receive and the total number of transactions you can make in a day, week, or month. There are also limits on how much you can transfer electronically as well as how much you can deposit. 

If you exceed the set limit on the amount of money or number of deposits you complete each day, week or month, you may need to pay a fine. Note that all of this differs from bank to bank so it’s crucial to find a plan that works with your specific business’s financial model.

#5 Extra services for freelancers 

Take a look at the extra services that the bank has for a business. For example, you’d probably find it useful to get notified when a payment comes in your bank account. Another great extra would be the possibility of integrating your banking with your accounting software.

#6 Support 

Having the right kind of support is absolutely crucial to a freelancer when choosing a bank. Delayed transfers – incoming or outgoing, missing payments, etc. can be a hassle to deal with. You want to look at banking options that provide 24×7 support to help you deal with any issues that may arise.

#7 Getting paid while travelling 

Are you always finding yourself on the go? Some freelancers enjoy the freedom of freelancing by travelling around as much as they can! If this sounds like you, you should check out if the bank offers credit/debit cards, what the charges for withdrawing money abroad are, etc.

Tips for comparing different bank accounts for freelancers

It can seem overwhelming trying to find the right bank account for you as a freelancer. Consider the following tips to make this process easier:

#1 Research multiple banks and financial institutions

Don’t just settle for the first bank near you. It’s always wise to research multiple banks before making a decision. Every bank offers different benefits and features and you want to choose one that best suits your business’s needs.

#2 Create a checklist of desired features and benefits

All businesses have different needs. For example, if you see your business making a significant number of checking transactions each month, choose a bank that offers a checking account option with a high transaction limit. On the other hand, if you struggle with tracking expenses, look for a bank that offers expense tracking features. 

It’s a good idea to make a list of all the things you would like from your bank and choose one that ticks, if not all, then most of the boxes.

#3 Consider the long-term needs of your business

Take the long-term plan of your business into account when choosing a bank. Select one that aligns with your business goals – this will help you avoid unnecessary fees and charges. 

In addition, look for a bank that offers flexible and scalable services that can be tailored to your business growth. After all, as your business grows, your banking needs may change.

#4 Look for introductory offers or promotions

Lots of banks offer introductory offers as a way to entice business owners into signing up. The offers can vary from lower fees to sign-up bonuses and more. If the bank you’re considering has a good introductory offer, chances are you’re choosing the right one.

#5 Read reviews and testimonials from other business owners

Lastly, always look for reviews and testimonials from other business owners. This will give you valuable insight into things like the bank’s customer service, account features, fees and more. 

You can also use reviews to note any concerns that other business owners may have with the bank – this will help you make an informed decision.

What are the best business bank accounts for freelancers?

Online banking is the new norm. Most traditional banks have adapted to this trend and offer online access to accounts. However, their fees are still pretty high.

Freelancers and digital nomads are tech-savvy and often on the go and are not happy with banking fees, bad exchange rates or high transfer fees.

With this scenario, the FinTech banking industry is growing rapidly and new products are constantly being developed – especially for freelancers and small businesses. We’ve rounded up some great banking options below for you to look through.

Best business bank accounts for freelancers
Best Banks For Freelancers

Best banking options for freelancers

  1. Qonto – With a 30-day free trial, freelancers can try out Qonto before deciding to sign up. Qonto offers three pricing plans, all of which have different numbers of transfers each month and access to financing offers and support, making this particularly lucrative for freelancers who are constantly on the go.
     
  2. N26 – Originally launched in Germany, N26 has quickly risen amongst the ranks to be an innovative and game-changing banking option across Europe and the US. With the free plan, you have virtually zero banking costs be it in terms of ATM fees, transfers fees, or the like. There are also other banking options available for freelancers who want extra features and benefits.
     
  3. Holvi – Holvi provides freelancers with the two pricing options – Holvi Lite (€9/month + VAT) and Holvi Pro ((€15/month + VAT). With both plans, freelancers can store receipts and have the ability to generate bookkeeping reports. This can be pretty useful when creating invoices for clients! Furthermore, with their Pro account, you can create, send and track invoices right from your account.
     
  4. Monzo – Based in the UK, Monzo is a great option for British freelancers. With an easy setup, zero transfer fees, 24X7 customer support, and a great user-friendly app, this platform can help freelancers stay on top of their finances with ease.
     
  5. Revolut – Revolut is one of the most travel-friendly banks out there. With 4 pricing plans to choose from, the cheapest one being free, Revolut offers features like no-fee transfers, interbank exchange rates, scheduled payments, and more.

Wise: Transferring money no matter where you are

Another great option for freelancers is Wise. Initially, they offered a cheap option to transfer money abroad but have since expanded their product with their multi-currency account.

Regardless of where you live, you can create a “seemingly local” bank account in countries like the USA (USD), UK (GBP), Germany (EUR) and other currencies. Using Wise, you can also convert and hold 50+ different currencies.

In addition, freelancers can invoice like a local no matter where they are based and receive multiple currencies for free. All they have to do is give clients their account number.

Wise also offers a Wise business account to pay business expenses both offline and online. The account also connects with Xero and other accounting tools, allows freelancers to download statements for the balance they hold and much more.

You can open a Wise account for free and send and receive money without hidden fees (Please note that Wise is one of our partners).

Steps to opening a freelance bank account

Once you’ve chosen your bank, opening an account is a pretty easy step. Here’s what you’ll need to do:

  1. Gather necessary documents and information: You’ll need certain documents on hand before you open a bank account. Most likely, you’ll need proof of your business name and its registration, social security number, business address, phone number, and proof of identity. You may need additional documents depending on your bank and the account you’re opening.
  2. Schedule an appointment with the chosen bank: Next, you’ll need to make an appointment by phone or email. You can also choose to open an account online if your bank has this feature. This will save you time and effort.
  3. Complete the application process and provide required documentation: At your appointment, be ready to provide all necessary documentation and answer any additional questions the bank may have about your freelance business.
  4. Set up online banking and other account features: When opening your bank account, explore additional options and features. Set up online banking for easy access as well as any other financial features like credit cards, merchant services, etc.

Tips for managing business finances effectively

Once  you’ve opened your bank account, it’s crucial that you take steps to manage your finances effectively. Some ways you can do that is by:

#1 Establishing good financial habits

As a freelancer, it is crucial to maintain good financial habits. Regularly keeping an eye on your expenses, monitoring account activity, generating financial reports are all good ideas in maintaining your business’s financial health. 

By staying informed and proactive with your finances, you reduce the risk of financial disaster and are in a position to make informed decisions that can drive business growth.

#2 Monitoring cash flow and transactions

Keeping an eye on your cash flow and transactions is vital for maintaining profitability as a freelancer. Set aside time every month to monitor where your money is going. This will help be more familiar with the finances of your business.

If your bank doesn’t offer cash flow tracking tools, there are loads of online tools available that can help you keep an eye on transactions and expenses and can help streamline expense management.

#3 Automating payments and transfers

Using automated payment systems allows you to streamline operations by speeding up payment processes and reducing errors. This goes a long way to maintaining good finances and can even reduce costs for your business.

When you automate your payments, you can also eliminate many of the manual tasks that are associated with traditional payment methods, thus increasing the efficiency of your business.

#4 Reconciling accounts regularly

Set some time aside every two weeks or once a month to reconcile your accounts. This will help you identify any discrepancies and potential cash flow risks and can even give you the confidence that all the values recorded in your accounts are accurate. 

Conclusion

To recap, business bank accounts are highly recommended for freelancers and small business owners looking to grow their business. Not only do they keep your personal and professional finances separate, they also make it easy to track expenses, income and taxes. 

Business bank accounts can also help you stay organised and can promote better financial health. 

Banks all around the world often offer features that can be tailored to your business’s needs and so it’s important that you choose a bank that can help your business grow. 

We hope this article was helpful! If you know or use any other freelancer-friendly bank, please let us know. We’ll be happy to update the article with more interesting options.

Stefania Volpe

Stefania joined the international team at freelancermap in 2020. She loves marketing, the digital world, foreign languages and meeting different cultures. She moved from Italy to Germany thanks to an exchange program at the university and worked as marketing manager for several startups. Now she focuses on helping freelancers and IT professionals to find jobs and clients worldwide at www.freelancermap.com.

By Stefania Volpe

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