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Should you choose a digital or traditional bank account?

A business bank account is a critical component for any business owner. It creates a separate place for your business finances and transactions to live, which makes it easier to manage your financial records, and ultimately stay organized. If you’ve started researching business bank accounts, you may have noticed that there are a wide range of options, from opening up an account where you personally bank, to opting for an online business banking solution.

If you’re choosing between a (likely cheaper) online bank and a traditional, brick and mortar one, then this article can help you weigh the pros and cons of both so you can make an informed decision.

Why you need a business bank account

Having a separate business bank account is important for a number of reasons. First, it provides a clear separation between your personal and business finances, which makes it easier to keep track of your inflows and outflows, as well as make informed decisions about your business. It also helps to establish your business as a separate entity, which can help provide protection for your personal assets in the event of legal or financial difficulties.

You also need a business bank account to apply for business funding. Most lenders won’t accept bank statements from personal bank accounts. Given that many lenders require at least three to six months of bank statements during the application process, your business bank account will have to be in use for at least that amount of time before you apply for funding.

How to choose a business bank account

When it comes to choosing a business bank account, there are a few key things to consider, including the fees, services, and accessibility. It’s important to assess your business needs, and find the one that best suits them.

What’s a digital, online, or branchless bank?

While almost all banks have apps and tools to help you bank online, we’re referring specifically to those digital banks that don’t have physical branches. This is why online banks can also be called “branchless” banks. Examples include NorthOne, Novo, and Mercury.

Pros and cons of branchless bank accounts

Pros of branchless bank accounts:

    • Usually have lower fees, including lower (or no) ACH and overdraft fees
    • Usually have higher annual yield percentages (APY)
    • Tend to have lower (or no) balance requirements, making them attractive for newer businesses
    • Usually easier to open and require less documentation

Cons of branchless bank accounts:

    • Limited or no physical branches
    • Often have slower ACH times, and limited services for complex transactions
    • Less personal relationships with your bankers, who can help provide guidance and personalized support for loan applications

Choose if:

    • You are looking for lower fees, balance minimums, and higher APY
    • You don’t have a lot of complex transactions or same-day transfer needs
    • A working relationship with a banker wouldn’t benefit you

What’s a traditional or brick and mortar bank?

Traditional banks include the big players you’re probably familiar with: Chase, Bank of America, and more. We’re also including local banks and credit unions under this category. The main differentiator, for the purposes of this article, is that traditional banks have physical branches and full service offerings.

Pros and cons of traditional or brick and mortar bank accounts

Pros of traditional bank accounts:

    • Opportunity to build a relationship with a banker who can help guide you and provide support for funding applications
    • Physical branches for in-person transactions, getting cashier checks, and more
    • Support for complex transactions such as same-day wire transfers
    • Less likely to close than online-only neobanks

Cons of traditional bank accounts:

    • Usually come with higher fees and/or higher balance minimums
    • Tend to have lower APY
    • Don’t always have convenient online banking experiences

Choose if:

    • You prefer a personal touch in your banking experience
    • You need access to physical branches for in-person transactions
    • You regularly need services such as same-day wire transfers or cashier checks

Alternative: Go hybrid

If you’re still unsure about which bank account to choose, you can consider a hybrid approach, which combines the benefits of both a digital and traditional bank account. Many business owners opt for a branchless bank to reap the benefits of a higher APY, while keeping a traditional bank account open for relationship building and emergencies. Others choose to open a digital bank account when they’re brand new, and then transfer to a traditional bank account once they grow enough to cover balance minimums and fees.

Wrapping up: How to choose between a digital and traditional bank

The choice between a digital or traditional business bank account ultimately comes down to your business needs. Consider the types of services you need and choose the one that best fits you today. You can always make a change later as you grow and reassess your situation. If you’re still unsure, you can always go for a hybrid approach and enjoy the best of both worlds.

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