Earn 8% In Your Business Bank Account
With Abbey launching a headline-grabbing interest rate, we put business current accounts to the test and unearth the Best Buys.
Although the market for personal current accounts is always lively, things are much more peaceful in the world of business banking.Indeed, while personal customers can pick from over three hundred different current accounts, business customers have a far smaller range from which to choose. Furthermore, hardly a month goes by without a new personal current account being launched to a fanfare of trumpets, whereas enticing new offers in the business-banking market are few and far between.Then again, I see that Abbey today launched a business current account which pays an unbeatable rate of interest on credit balances: a whopping 8% a year before tax. This follows hot on the heels of the launch of Abbey's 8% current account for personal customers two weeks ago, which I reviewed in Earn 8% In Your Current Account.However, as you'd expect, this market-beating rate comes with strings attached, as follows:1. This 8% is only paid on the first £2,500; any amount in excess of this threshold earns a before-tax tiered rate which depends on the account balance. These tiered rates range from 0.75% a year under £5,000 to 3.50% a year on £100,000+.2. After one year, this 8% 'teaser' rate drops to Abbey's usual tiered rates, as above.3. This rate is only available to customers who switch their existing business current account to Abbey, so it's no use to existing Abbey customers or those who are new to business banking.4. Abbey offers free day-to-day business banking forever on this account, which includes unlimited direct debits, standing orders, bill payments, transfers between linked Abbey accounts, BACS credits and debit-card payments. It also includes monthly limits of up to one hundred cheques deposited (50p per item thereafter), up to £3,000 cash deposited (50p per £100 thereafter) and up to a hundred cash and cheque withdrawals (50p each thereafter).So, if you're a dissatisfied business customer of another bank (of which I'm sure there are millions!), then this new Abbey account may look appealing. Indeed, I imagine that this could tempt small businesses and sole traders with modest turnovers who can take full advantage of the 8% teaser rate and largely fee-free banking.Then again, although Abbey's new business-banking deal looks competitive when compared to the often dismal interest rates paid by rival accounts, it won't suit every business. For example, it's not appropriate for my private company (which employs me and my trusty keyboard), because my firm always keeps a credit balance considerably in excess of the £2,500 limit for Abbey's 8% headline rate.In order to find the best interest rates for in-credit business current accounts, I checked the Best Buy tables compiled by independent researcher Moneyfacts. Here's what I found:Business current accountInterest rate before tax (% a year)Alliance & Leicester Commercial BankFree Business Current6.35% on up to £1,000; 0.1% on any excess. Guaranteed to be base rate plus 0.60% until 30/09/08.Bank of Scotland Business BankingBusiness Current3.75Co-operative BankClarity3.25Lloyds TSBBusiness ExtraNatWestBusiness Standard3.25Royal Bank of ScotlandBusiness Current3.25It's worth noting that many business current accounts offer an introductory period of fee-free banking to new customers, usually lasting twelve to eighteen months. However, after this, almost all business accounts apply monthly charges based on the number of transactions made, which can really stack up if your business processes lots of debits and credits.Therefore, my advice would be not to be seduced by headline-grabbing rates of interest. Instead, dig deeper into the ongoing costs of managing your business, taking into account transaction and borrowing costs. You can do this by using the British Bankers' Association Business Account Finder, which works for charities, clubs & societies, limited companies, partnerships, and sole traders.More:Best Buy Accounts For Businesses | Find a better personal current account today!