One of the most fundamental financial and managerial strategies for business owners and managers alike is to have separate bank accounts for personal and business use. This strategy ensures that the affairs of both these concerns would not get mixed up, which could lead to certain issues in accounting, budgeting, and fraud detection. If you haven’t already, you should definitely set up a separate account for your business, such as a Chase business account. Chase offers bonuses of up to $300 if you open a business account with them, so it’s definitely something that you should consider.
In this article, we are going to break down the key differences between a personal bank account and a business bank account. We’re also going to include some insights as to how these differences affect the way these two types of bank accounts are handled.
First off, legal structure. This pertains to the ownership and maintenance of these accounts. On the one hand, personal bank accounts are, of course, owned and maintained by individuals. In contrast, business bank accounts are typically owned and maintained by a group of people, such as companies and organizations. The main reason why this is the case is that business bank accounts are typically much more complex, and they also involve bigger cash amounts as compared to personal bank accounts. Having multiple people overseeing the ownership and maintenance of business accounts allows for better financial decision-making, fraud protection, and allocation of responsibility.
Usually, personal bank accounts are managed by a single individual. This means that everything – from budgeting to expense recording to financing – is borne by the individual. In stark contrast, business bank accounts are managed by teams and are led by officers to ensure that each banking process is in accordance with the company’s goals and objectives.
Documentation pertains to the necessary documents required to open and set up an account with a bank or a financial institution. Again, personal bank accounts are typically more simple as they only require a government-issued ID and proof of address to open. Unsurprisingly, business bank accounts will require additional documentation. This could be in the form of articles of incorporation (for corporations), a business license, or the identification number of the employer. On top of that, banks sometimes require business account holders to renew their accounts every now and then by updating their documentation. Finally, penalties are also considerably higher for business bank accounts, given their nature.
Security is also a key difference between a personal bank account and a business bank account. Generally speaking, business bank accounts are exposed to more threats and feature a higher risk as compared to personal bank accounts. This is because of the nature of business bank accounts in that they typically involve multiple individuals, and the amount of money involved is considerably larger to begin with. In line with security, business bank accounts also require more steps to add or withdraw money from the fund. This is usually a well-organized process, which involves clearances and permissions from different officers to ensure that the fund is allocated properly and the appropriate amounts are recorded.
The final key difference between personal bank accounts and business bank accounts is that specialized services are often offered to the latter. Business bank accounts, given the nature of their existence, are typically accompanied by extra features, such as merchant services, credit lines, and special loan considerations. This is because business bank accounts typically serve a much greater purpose in that it serves as the financial backbone of companies and business. Ultimately, some of these features are simply unavailable to personal account holders because they would not benefit from this type of arrangement.