There’s no shortage of business bank accounts to choose from. If you’re planning to start freelancing soon or have been working for a bit and want to manage your earnings more efficiently, chances are you’re searching for the best freelancer bank account. In this guide, you’ll learn how these accounts work and how to find the best fit for your freelance business.
What is a Freelancer Bank Account?
A freelance bank account is another term used to describe a business bank account. You can use it to conduct business-related transactions, including purchases, bill payments, cash and check deposits, electronic funds transfers (ETFs) and wire transfers. If you open a business checking account, you’ll get a debit card and checks to make purchases.
Plus, you can provide clients who wish to pay you electronically with your routing and account number to receive compensation for your work. It’s also possible to set up a merchant account to accept debit and credit card payments.
There are two primary types of bank accounts for freelancers to choose from:
- Business checking account: It is used primarily to make purchases, remit payments for bills or other operational expenses, withdraw funds when you need to access cash and make withdrawals.
- Business savings account: Freelancers can use a business savings account as a cushion. Funds are easily accessible if a cash flow issue or other financial emergency arises, but monthly withdrawal limits apply.
For freelancers with more in-depth banking needs, merchant accounts and investment accounts are also available through most traditional banks and credit unions. In addition, select online banks also offer these accounts. Here’s an overview of the purpose they serve:
- Merchant accounts: If you wish to accept debit and credit card payments at the point of sale, you’ll need a merchant account.
- Investment accounts: This type of account, which often consists of securities and cash, can help grow your freelance earnings.
How Does a Freelancer Bank Account Work?
Although they share many of the same features of personal accounts, there are key differences to be aware of. Some business bank accounts feature tools that make it easier to manage your company’s financial affairs and keep your business moving forward. These include payroll, invoicing, bookkeeping and payment processing capabilities. Fees for these features vary by the financial institution.
Furthermore, some business bank accounts place caps on the number of permissible monthly transactions. You may also be limited to the number of cash deposits you can make in the same period.
Who Is Considered a Freelancer?
Freelancers are individuals that operate independently. They take on projects or enter into non-employee contracts with organizations to earn income. Freelancers may be labeled as contractors, consultants, side hustlers or 1099 workers.
If you work as a freelancer, you’re responsible for managing your own expenses and income. This includes invoicing clients, collecting payments, covering the cost of your health insurance and remitting employment and business taxes to state (if applicable) and federal authorities.
Do Freelancers Need a Separate Business Bank Account?
You’re not legally required to open a separate business bank account for your freelance business. However, doing so prevents you from commingling personal and business assets. You’ll also find it easier to manage your company’s finances and keep transactions organized. A separate business bank account also alleviates the stress of having to sift through loads of transactions at tax time to identify which are business-related.
Tips to Find the Best Freelancer Bank Account
When exploring banking options for your freelance business, keep these factors in mind to help streamline your search.
1. Select Those with Easy Sign Up
How long does it take to apply for a bank account? Does the financial institution accept online applications, or do you have to visit a branch with business documents in hand to apply? Many traditional banks and credit unions require you to sit down with a business banker who will review your documents and submit your applications for a business bank account.
The entire process can be handled digitally if you choose an online bank. Either way, you want a bank with a streamlined account application process to get your business banking up and running sooner than later.
2. Choose One with No Fees
Banking fees can take a bite out of your freelance income. So, you want to steer clear of financial institutions that charge a mini-fortune to use their banking services. Instead, explore multiple options to find a bank or credit union that offers fee-free checking and savings solutions to freelancers.
When researching accounts, be on the lookout for monthly maintenance fees, excessive withdrawal fees, overdraft fees, minimum balance fees, wire transfer fees and out-of-network ATM withdrawal fees. Some of these fees aren’t advertised, so you’ll need to read the fine print to ensure you’re opening an account that truly provides a fee-free banking experience. If you find the perfect account for your freelance operation, but it comes with minimal fees, inquire about ways to have them waived.
3. No Balance Requirements or Transaction Limits
Does the account require you to maintain a minimum daily balance to avoid fees? If this figure isn’t feasible, look at other bank accounts. If possible, only consider options that do not impose stringent balance requirements, even if you earn sizable profits, to avoid fees if you take some time off and earnings stall or in the unlikely event you experience a downturn.
Transaction limits are another vital factor to consider when evaluating freelancer bank accounts. It’s not uncommon for banks to implement strict guidelines regarding the number of monthly transactions you can complete before fees are assessed. These include limits for both spending and cash deposits, and in many cases, are avoidable if you adhere to the bank’s guidelines. Or you can select an account option that doesn’t come with transaction limits.
4. Tons of Services and Features
What options will you have to manage your business bank account while on the go? Is the mobile app user-friendly? How about the mobile banking website?
Does the bank or credit union have features or tools on the dashboard to manage your company’s finances effectively? Are account alerts an option? Can you initiate wire transfers or electronic payments for goods and services? What other services and features make this freelance bank account a viable option?
5. Business and Payment Integrations
The more services and features the bank or credit union offers to small business banking customers, the better. As your freelance business grows, you want a financial institution that can continue to meet your needs so you won’t have to go elsewhere.
Hence, the importance of payroll software if you decide to join forces with other contractors or merchant services to collect debit and credit card payments. Business lending solutions, including loans, lines of credit and credit cards, are also a plus when the time comes to expand operations or enter into a new business venture.
6. Built-in Expense Tracking and Tax Tools
Several business bank accounts have built-in expense tracking tools you can use to categorize expenditures. You may also be able to view weekly, monthly or yearly spending trends or generate expenditure reports for different periods.
If the financial institution offers bookkeeping services, you could also find it easier to keep your company’s financial records more organized. Again, this makes it easier on you at tax time, and it’s even better if the bank offers digital tax preparation assistance.
7. Pick One that Comes with a Debit/Virtual Card and Other Rewards
A new account award is an incentive many of the larger banks use to entice freelancers. If you can meet the guidelines to receive the incentive, these accounts are worth considering. Just be sure the fees are minimal – accounts without monthly maintenance fees or stringent transaction limits are even better.
If you open a checking account, it should also come with a debit card and virtual card to make it easier to make purchases while keeping your account secure. Business checking accounts offering cash-back rewards on purchases made with your debit card are also ideal. You can earn even more money from routine spending on business-related expenditures to invest in your freelancing business.
8. Go with a Bank Specifically Designed for Freelancers and the Self-employed
Some banks go the extra mile to provide the tools freelancers and self-employed individuals need to run and grow their businesses. When evaluating your banking options, take note of financial institutions offering low-cost or fee-free bank accounts with business support services. These include digital expense tracking, payment and software integrations, flexible lending products and digital access.
The ability to earn cash back on everyday purchases is also a major perk. As a freelancer or self-employed individual, you could be making several purchases to cover operational expenses. But as you continue to generate cash-back rewards, you can use the funds to re-invest in your business and hire help to foster expansion into something bigger.
A bank offering investing and brokerage services is another plus. Since you don’t have the luxury of building a 401(k) or receiving a pension from your employer when you retire, you can use these services to build your nest egg. Or you can take advantage of digital investing solutions to grow your earnings and invest in your company in the short term.
