What’s the difference between a personal and business bank account?

If you run your own business, you might be wondering whether you need to open a separate business bank account or if you can stick with your existing personal account. 

Before deciding, it’s important to understand how both types of accounts work and their key differences. Read on to find out everything you need to know.

Key takeaways

• Personal and business bank accounts work in similar ways but have different purposes

• A business bank account could give you access to accounting tools, free business advice and features that simplify tax 

• Keeping personal and business finances separate makes it easier to control cash flow

• If you’re a limited company, limited partnership or limited liability partnership, you must open a business bank account

Business vs personal bank accounts

Business and personal bank accounts work in similar ways but have different purposes. 

A personal bank account can help you manage your personal, everyday banking needs, such as making and receiving payments. In contrast, a business bank account can assist you with business transactions and expenses. 

Business bank accounts

A business bank account lets you keep your business and personal finances separate. This can make life a lot easier when it comes to filing company accounts and tax returns. 

It lets you:

• make electronic payments

• withdraw and deposit cash

• receive payments from customers

Business bank accounts often come with additional features tailored to the needs of businesses.  

Some of these features enable you to integrate your account with accounting software to help you streamline your finances and use invoicing tools that track, send and chase invoices on your behalf. 

However, many business bank accounts also charge monthly or annual fees, and you might need to pay transaction fees. 

💡 Editor insight: 7 reasons why it’s time to switch from a personal to a business bank account

Personal bank accounts

A personal bank account enables you to manage your day-to-day banking activities. You can receive your salary into your account, as well as set up Direct Debits and standing orders to pay regular bills and expenses. 

Much like business accounts, the features available on a personal bank account vary depending on the provider. But whereas a business account might offer accountancy tools, a personal account is more likely to offer features such as cashback or interest on your account balance (although some business accounts may offer this too). 

Most personal bank accounts don’t charge transaction fees, and many also come without a monthly fee. Accounts that do charge a monthly fee often include added benefits, such as travel insurance or vehicle breakdown cover for you and your family, sometimes called a packaged bank account.

Can I use a personal bank account for business? 

If you operate as a limited company, limited partnership or limited liability partnership, you must have a separate business bank account. This is because these business structures are viewed as separate legal entities and their finances must be separate from their directors’ personal accounts. 

You may be able to use a personal bank account for business purposes if you're a sole trader or in a general partnership, as these structures don’t create a separate legal entity, and therefore aren’t legally required to have a dedicated business account.

However, some banks don’t allow you to use your personal account for business purposes and may close your account if you use it in this way. Opening a sole trader bank account can help you avoid this issue while giving you access to useful business features.

Read more:

• Do you need a business bank account?

• Why business bank accounts for partnerships can be valuable?

Why should you open a business bank account?

Even if you don’t legally need to open a business bank account, it can be beneficial to do so for the following reasons: 

• Streamlined accounting: Unlike a personal bank account, a business bank account can offer additional tools and software to assist you with tracking invoices and filing your accounts 

• Simplified taxes: Using a business bank account makes it simple to decipher which expenses belong to the business, making completing your tax return much easier

• Extra business perks: Some business accounts offer additional benefits such as free business advice and card payment solutions that you won’t get with a personal account

• Multi-currency options: Some business accounts let you hold multiple currencies, making it simpler and cheaper if you regularly deal with clients overseas

• Professionalism: Opening a business bank account can make your business appear more credible. It means clients can pay into an account labelled with your company name, rather than your personal account

• Credit building: Setting up a limited company bank account with an overdraft can enable you to build a credit score for your business. If managed well, it may help you to qualify for a business loan or other forms of credit at a later date

• Spending controls: Some business bank accounts enable you to hand out expense cards to your employees, often with the option of setting spending limits for each card. This can help you simplify expenses, and you can often track spending via online banking or through your banking app 

• Higher transaction limits: Business bank accounts can typically handle larger transaction volumes compared to personal accounts 

Key differences

Although both personal and business bank accounts let you send and receive funds, as well as pay bills and other expenses, there are some important differences to be aware of. 

While a personal bank account is primarily designed to be somewhere you receive your salary and set up payments to cover your everyday expenses, a business bank account often comes with an array of features to help you streamline your business finances and save you time and effort.

Using a business bank account can reduce the risk of you making mistakes in your tax return, and can also make your business look more professional. However, as with any financial product, it’s essential to compare your options carefully when choosing a business bank account. This means looking at account fees, charges and eligibility criteria before you apply.