Yes, You Need a Business Bank Account If You're Self-Employed & Here's Why
If there’s one mistake I see self-employed small business owners make it’s this: not having a business bank account.
You start your business, book a few clients or make a few sales, and after a few months (or years) your personal checking account is starting to look a lot like your business—except, it’s not. It’s still where you’re paying your mortgage, rent, groceries, Netflix subscription, etc.
But whether you’re a sole proprietor, LLC, or S-corporation, setting up a business bank account should be at the top of your to-do list.
A note to you: this post contains affiliate links, which means I may receive a commission when you purchase through these links. I only ever recommend products, tools, and resources that I’ve tried and trust.
What is a Business Bank Account And Who Qualifies?
A business bank account is a financial account dedicated solely to your business’s transactions. It’s a centralized account for you to deposit your income—including income earned via Paypal, Stripe, HoneyBook, etc. and pay your expenses.
Many business bank accounts will require you to have an EIN (an employer identification number, similar to a social security number but for your business and it’s free). Others will allow you to use your social security number.
And while you’re not legally required to create a business bank account because you’re self-employed, it IS a requirement to keep your personal and business finances completely separate if you’re an LLC.
Using one account for both personal and business and making regular purchases for one through the other is called “comingling funds” and can cause you to lose your liability protection.
Online Business Bank Accounts vs. Local Business Bank Accounts
There are two main types of business bank accounts: local and online.
Local business bank accounts are like your everyday personal accounts. They have an in-person location, people at the desk, and are usually best when you’re regularly depositing and pulling out cash.
While they often come with more fees, they also come with the ability to build a relationship with the bank or credit union—which can make a huge difference if applying for an auto loan or small business funding is in your future.
Online business banking on the other hand (like Relay) works through an online app or website. These are usually more online business friendly as they tend to play nice with your budgeting apps and third-party payment processors.
They usually have fewer (usually no) fees, but often don’t have additional banking services like mortgages for your personal use. On the other hand, they’re able to provide higher interest (by a lot) because they don’t have the overhead of being a traditional brick & mortar bank.
My personal favorite small business focused bank is Relay, an online-only business bank account. It has no monthly fees, automates money movement (making budgeting and saving for taxes 10x easier), and you earn interest on your savings.
As for big business bank accounts, I recommend Chase. They have consistent customer service, products designed for small business owners, and play nicely with your payment processors and account software. The downside is a monthly fee if your balance isn’t high enough.
What About Venmo, Paypal, CashApp, and Other Apps?
The same separation of personal and business you keep for your traditional bank accounts is the same separation you should keep for Venmo, Paypal, Cashapp, and other payment/banking apps.
However, I still recommend depositing your business income from these apps into your business bank account before depositing it into your personal bank account as an owner’s draw.
This will allow you to get a better picture of where your money is, where it’s coming from, and how much you’ve actually spent on investments and paid yourself.
Please make sure you’re using the business version of these apps. In most of their Terms of Use, these platforms restrict use if it’s for business purposes—which can lead to the removal of your account.
How to Set Up Your Business Bank Account
First, pick the bank you’d like to open an account with. Again I recommend Relay, but one that works for you. Don’t get decision paralysis, if you don’t like your bank you can switch to a new one.
If you don’t currently have an EIN, you can use your SSN—but if you see your business scaling, or as something you want to do long term, I also recommend applying for an EIN first. It’s free!
Once you set your business bank account up, make sure you connect all your third party payment processors to make sure all your income ends up exactly where it needs to be.
And now that you have the essentials, it’s time to start planning your monthly money date (and keep up with your budgeting!!). A monthly money date is where you sit down and look through your accounts and reports, such as your profit and loss or checking your income and expenses.
Ready to get started? Grab my free Monthly Money Date workbook here!
