Major differences between Business and Personal Account

Living in the 21st-century, one needs to have a bank account to easily and safely make transactions without any threat of losing it. Money is a crucial factor in an individual's life. After the individuals have worked very hard for earning it, they look out for ways to keep it safe. Here, the role of banks comes in.

Running a business requires consolidating accounts, and keeping track of the financial transactions. This information is required to keep a check on the company's financial health and make smart business decisions. Thus, when a business is being operated, one must maintain different bank accounts to manage their funds. To manage business and personal expenses, one has to maintain separate accounts. Handling two different accounts might be a tedious job, but it is a good business practice. Sometimes maintaining two different accounts is the demand from the business itself.

What Is a Business Bank Account?

A business bank account is used by small businesses to keep and manage the money within the organisation's running. Personal bank accounts cannot be used for making business transactions. The individuals use it to hold and manage their funds. Sometimes individuals have to maintain a business account when operating as DBA ( doing business as) or working under any other corporation.

A business bank account consists of a business checking account and a business savings account. For writing cheques, depositing cheques, and transferring money electronically, business checking accounts are used. The banks' service fees from the account holders consist of maintenance fees, deposit fees, ATM fees, and transaction fees. While some banks provide these services for free to some account holders, higher restrictions are imposed. Thus, while choosing a business checking account, one must go through these terms and conditions properly and choose the one which is best suited for their business.

A business savings account helps in separating savings from the working capital. It helps in earning interest from the funds which are kept aside. There are various requirements which are to be followed while maintaining a savings account. While some need to maintain minimum balance while others are required to deposit a minimum deposit within a fixed period.

What Is a Personal Bank Account?

A personal bank account is a type of bank account which is not used for business. Individuals use it to maintain their own private funds and other kinds of assets. In a personal account, there is only one person who is depositing money and withdrawing it. This creates high-security measures as only one person has access to the funds. With personal bank accounts, an individual does not have to carry huge amounts of money in their pockets to make payments. Instead, they can use their accounts to make the payments safely and freely.

With the available technology, an individual does not have to make payments for personal expenses such as insurance, telephone bills, gas, and electricity. These personal bank accounts have a system of debiting auto payments. Thus the bills are paid for as and when they are due, and the individual does not stand in long queues or pay for the penalty.

Having a separate account for the business is a necessity even though the individual has a personal account. A well-maintained business bank account helps in safeguarding the business funds by separating personal finances. Having separate accounts help in monitoring business spending easily and helps in the creation of realistic budgets. Separate accounts help in maintaining good bookkeeping habits, which helps in organising business finances. In need for money, these accounts can be used for obtaining credit for adequately maintained.

Advantages of having business accounts over personal accounts:

1. Purchasing power

Credit cards can be used to make huge payments and establish a good credit history for the business. If personal and business transactions are maintained in a single account, then the individual's credit history can be affected.

2. Professionalism

Customers can transfer funds by internet transactions and sign checks to the business directly rather than making them to the owner. Writing out checks from a business account causes harm to the business image.

3. Protection

When business funds are kept separate from the personal ones, the banks offer limited personal liability protection to the individuals.

Also read:

1) Personal Loan: How to apply, features, benefits & more
2) What Is a Universal Account Number? How to get your UAN?
3) What Happens If Personal Loan EMI Is Not Paid? Complete Details.
4) Everything You Need to Know About PPF Account: Benefits & Features

FAQs

Q. Can an individual use a personal account for business expenses or business account for personal expenses?

Ans. It is recommended that this process should not be followed. The business and personal expenses should never be mixed with either of the two. Maintaining separate accounts for business and personal financials helps avoid legal issues and problems and makes record keeping easy.

Q. Can the same bank be used for maintaining business and personal accounts?

Ans. Yes, one can have the same bank for maintaining different accounts. It's recommended to have an account in the financial institutions which one is already familiar with. If one has a personal account from before and is in a good position, they will get a better deal on the business bank account.

Q. How much money does one need to take before opening a business bank account?

Ans. An individual does not have to generate revenue to open a business bank account. But the need for opening this account arises as soon as they start making business transactions. Some banks may ask to make a minimum amount of initial deposit to open the account.

Q. Under a sole proprietorship, can the personal account be used?

Ans. Individuals do not need to have a separate business account when working as a sole proprietorship. Even though having a separate account will not be a bad idea, a well-maintained account will help distinguish the various expenses easily and help in the business's management and functioning smoothly.

Q. Can one account be maintained for personal and business-related expenses if the individual owns a corporation or LLC?

Ans. Once the individuals have registered themselves as an LLC or corporation, they are compulsorily required to maintain a separate bank account for managing the business finances. A business account has to be opened in the name of the business to handle business transactions.