A. In an interest-bearing business savings account
It’s entirely possible that you’ll have money sitting in your business bank account, waiting to pay your taxes or other business expenses.
But many people don’t realise you can earn interest on your balance - by moving these funds in to a business savings account.
Similar to a personal savings account, you’ll earn interest on your balance.
As interest rates are still relatively strong at the moment, you might be able to earn around 4-5% on your balance (as of Nov 2024).
For sole-traders, you can use any type of savings account, as the money is your own. As a limited company, you are likely required to use a dedicated business savings account, as per the bank’s terms and conditions.
However, keeping your business and personal finances separate is always a good idea - so opening a dedicated business savings account is probably sensible.
Consider carefully which business savings account is right for you - some offer instant access to your funds, while others lock your money away for a period of time for a higher rate of interest.
There are even platforms which automate the process for you, taking a chunk off every invoice payment and putting it in to a business savings account, so you don’t even need to think about it.
Remember, you’ll need to report any interest you earn on your savings - if you’re a sole trader, you’ll do this via your self-assessment tax return. If you’re a limited company, you’ll include it in your corporation tax return.
Running a small service-based business, for years I’ve taken VAT and another 20% of every incoming payment as soon as it hits my current account, and manually moved it into a separate savings account.
I could use Starling spaces, but they don’t pay interest, and while my VAT cash is waiting for HMRC, I’d rather it pay me something.
It all adds up! My interest earned the past year has paid for at least one subscription I use in my business.
A commonly asked question about keeping your finances easy to manage.
Whilst not legally required for sole traders, using a business bank account helps keep things simple for reporting and accounting.
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