Is your business banking too expensive?

Business banking costs can quickly rack up, just when entrepreneurs should be keeping their costs down. Cris Sholto Heaton takes a look at the alternatives.

Keeping costs down is standard advice for every start-up, but new entrepreneurs are often shocked by how many unexpected expenses they'll encounter. Take the company bank account. Most of us are used to our current accounts being free of fees, so long as we don't go overdrawn. But the same isn't true for business bank accounts, where account maintenance fees, transaction fees, statement fees and many other charges are routine.

For businesses that do a very high volume of transactions or have specialised requirements, some of these charges may be understandable. However, small service-based businesses, such as consultancies and contractors, will do virtually all their banking online and their accounts may be no more active than a personal current account. In this situation, business banking fees which run at around £5 per month, plus about 0.2p-0.3p per electronic transaction can feel like a rip-off.

So are there any cheaper or free alternatives? At one point, many of the major banks offered free online-only accounts, but most of these have now been scrapped. However, they usually offer special tariffs that have a slightly higher monthly fee in exchange for no transaction fees for online payments. This could be a significant saving for some types of businesses.

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There is also a dwindling number of accounts that can be fee-free if operated in the right way. Cater Allen, which is part of Santander, carries no monthly fee and allows up to 30 free transactions per month on its Reserve Account, as long as your balance remains above £5,000.

And Metro Bankalso waives the monthly fee and allows up to 50 free transactions on its Business Bank Account, subject to the same condition. Cater Allen accounts are opened by post, while Metro Bank requires a visit to one of its branches, which are currently all located around London.

Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.