Business Checking vs. Personal Checking: Understanding the Key Differences (2024)

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• Business checking accounts are required for partnerships, LLCs, and corporations.
• They offer higher transaction limits, streamlined recordkeeping, and payment flexibility.
• Personal checking accounts don't offer the same level of professionalism or legal protection to businesses.

If you are starting your own business, the IRS recommends getting a separate checking account specifically for managing business finances. But do you need to open a business checking account, or can you open a secondary checking account instead?

We'll explain the differences between business checking accounts and personal checking accounts so you can better understand your options and which next step to take in your business.

What is a personal checking account?

A personal checking account is used for everyday household finances. Up to $250,000 of your money will be protected by the FDIC in the event of a bank failure.

While it may be easier to set up and open a personal checking account than a business checking account, you generally won't have access to valuable business features.

What is a business checking account?

A business checking account is specifically geared toward business owners, with separate FDIC insurance coverage (up to $250,000 per owner of the account). As a result, it offers a greater sense of protection and professionalism for people managing business expenses.

When you open a business checking account, you'll have access to additional business banking features at financial institutions. Many banks offer merchant services, which allow you to accept credit cards, debit cards, or mobile payments as payment methods. Using a business banking account can also help you qualify for a business line of credit or business loan.

Benefits of personal checking accounts

Ease of use

A personal checking account is essential for managing everyday household expenses, such as food, housing, and childcare. You have a debit card to make purchases, check-writing capabilities, and ATM access, and you can set up direct deposit for your paycheck as well as automatic transfers to a savings account to fund financial goals.

Access to personal banking benefits and rewards

Though checking accounts have historically charged monthly service fees and earned very little interest, the tide has changed in recent years. There are plenty of fee-free and high-yield checking accounts to choose from, some of which offer cash-back rewards, shopping discounts, and other personal spending benefits.

Benefits of business checking accounts

Special features

Business checking accounts allow you to deposit and withdraw cash, make purchases, and pay bills, much like a personal checking account.

However, business accounts also typically come with special features, such as the ability to pay employees and accept debit and credit card payments from vendors or customers. They may also provide debit cards for employees and allow payroll or bookkeeping software integration, helping to streamline your business finances.

Legal and financial protection

Keeping your business assets separate from your personal assets protects you legally as a business owner. If you operate as an LLC, partnership, or corporation, your personal assets are protected from creditors. Differentiating between personal versus business assets can get complicated if the funds are commingled.

Tax simplification

A business checking account can also simplify tax preparation for small business owners, who can avoid combing through their personal transaction history to find deductible expenses related to the business.

Documentation required

Personal checking accounts can be opened online or at a branch and don't require as much documentation as business checking accounts.

You'll usually need a U.S. ID, a Social Security number, and an address. If you do not have a Social Security number or U.S. ID, some banks will allow you to use a foreign ID instead.

You will need the above personal information as well as business documentation to open up a business checking account online or at a branch.

If you operate an LLC, partnership, or corporation, you'll need to have your Employer Identification Number(EIN), business license, and any important business documents that specify partnerships, business, and operations agreements.

Choosing the right account

Assessing financial management needs

A business checking account will be a better option if you plan to use other business banking services offered at financial institutions.

"Business accounts do offer benefits that aren't available to regular checking accounts that could be tied to merchant services. There's also additional liability protection separating your funds," says Marguerita Cheng, a CFP® professional and CEO at Blue Ocean Global Wealth.

For example, banks may offer merchant fraud protection tools for your business and customers when you have a business checking account.

Jeb Jarrell, a CFP® professional and owner of Plentiful Wealth, LLC, also notes a business checking account allows you to look more professional when you're competing for a client or operation; it shows other business owners that you are a legitimate business operation.

Considering future growth and legal requirements

Cheng says if your business is a sole proprietorship, you might open a personal checking account instead of a business checking account as long as you keep your finances separate and distinct.

"If your business is growing, you can open a secondary checking account," adds Cheng. "Then, as your business grows, you can upgrade and get additional customer features. That way, you're not commingling your money, but you're not setting all these bells and whistles."

Evaluating fees and features

Some business checking accounts charge a monthly fee that can only be waived by maintaining a high balance, such as $100,000 or more. They may also charge fees for excessive transactions or overdrafts, so be sure to carefully read the fee schedule on the bank's website.

Business checking vs. personal checking FAQs