Life as a freelancer is easy when you don’t have to worry about cashflow and budgeting. Opening separate business and personal accounts will certainly help you achieve this. To clarify, the best freelance bank account should make it easy for you to transfer money, receive payments, and minimize fees.
Without these tools and features, freelancers will find it difficult to manage their budget. Keep in mind that you don’t get paid for analyzing your finances and reading cash flow statements. Equally as important, a freelancer’s profit margins will further diminish when their bank charges unaffordable fees.
But how can you identify the best freelance bank account? In short, there are three key factors that you should look for. Firstly, you should have the necessary tools that allow you to instantly transfer funds in and out of your account. Secondly, a bank that has little-to-no deposit requirements is even more ideal. Thirdly, the lower the monthly fees and transaction costs, the better your banking experience will be.
Choosing the Best Freelance Bank Account: Transfer Processing
Firstly, freelancers should open an account that makes it easy, quick, and convenient to transfer money. This includes both inbound and outbound transactions.
To ensure that your earnings are immediately accessible, an ideal bank account should be connected to external apps. For example, if your clients pay you through Stripe, the software’s tools will allow you to immediately withdraw the funds.
However, not all banks will process that transaction right away, especially during the weekend. Moreover, while Stripe could let you transfer money instantly, certain financial institutions might take a few hours to process the transaction.
Similarly, Upwork and other freelance websites have an instant withdrawal option, which is also available on weekends. Yet if your bank’s transfer times take longer, this feature is more or less useless.
Luckily, though, most banking firms have the necessary software that supports immediate deposits from a payment app or freelancing website.
Not only should it be easy to transfer money into your business account, but you should be able to quickly withdraw it. This is especially important when it comes to transactions between your personal and freelance accounts.
If both of them are opened with the same bank, most financial institutions will make this process easy and cost-free. In fact, you can transfer the funds from/to these accounts through a phone app or an online banking.
Having said that, some financial firms may have competitive and desirable business features, but the same can’t be said about their personal accounts. The opposite could also be true.
Because of this, many freelancers will open separate accounts with different banks. Nonetheless, you should still have the option to instantly transfer money between them and for free.
To clarify, apps like Zelle facilitate this process very effectively. In fact, as of early 2019, Zelle worked with about 170 different banks.
As long as your personal and freelance bank accounts have their own email address and phone number, you can initiate instant transfers from/to each of them and for free.
Finding the Best Freelance Bank Account: Getting Started
Most of the time, banks have a minimum deposit requirement for opening a new account, whether it’s for personal or commercial purposes. Yet, since the deposit amount varies from one bank to another, freelancers still have plenty of options and flexibility.
For example, America First Credit Union, Capital One, and Fifth Third Bank will let you open an account without any minimum deposit rules. Well Fargo, meanwhile, only has a $25 funding requirement.
Equally as important, freelancers should consider how long it takes to access their new business account and the type of documents they will need.
Many banks ask for a Federal Employer Identification Number (FEIN), which somewhat acts as your business’ social security number. However, freelancers, particularly sole proprietors and those who don’t hire any employees or contractors, don’t have a FEIN.
As a result, it would much easier and quicker for them to open an account with a bank that doesn’t ask for one. Another option would be to apply for a FEIN, which is usually a quick process that takes less than three days.
Since every freelance business is different, there is no right or wrong choice. Nonetheless, studying each bank’s minimum deposit and required documents will help you pick an account type that best suits your needs.
Fees, Fees, Fees
Needless to say, freelancers should consider whether or not they can afford an account’s monthly maintenance fees. This part is even more important when you open two separate accounts.
Firstly, most banks will waive their monthly fees if your balance is above a certain amount and/or the account has enough activity. For instance, when your funds are over $1,000 during a given month, some financial firms will not charge you their maintenance fee.
Similarly, when you initiate over 50 or 100 transactions (as an example) on your business debit card, the bank may reduce or eliminate the monthly cost.
Just as with deposit requirements, the best freelance bank account depends on each person’s budget and activity.
If you don’t receive a large amount of money per month or if your business account transactions are limited, choosing the option with the lowest monthly fees may suit you best.
Yet when you regularly use your business debit card, an account with higher fees (and more features/tools) might be a more desirable choice. For a start, you don’t incur the cost when your account is active enough.
Lastly, freelancers must pay attention to transfer expenses, especially since some financial firms will charge you for both incoming and outgoing transfers.
As a result, your profits might get diminished when you deposit them into your account, particularly if it’s through a bank that charges inbound transaction fees.
Why Not Open One Account?
Many people will argue that opening a single account is easy. Why? Because it’s quicker. Additionally, paying one monthly maintenance fee is much cheaper than two.
However, combining your personal and business finances can be a nightmare. In fact, it makes budgeting for freelancers very difficult when they analyze cashflow and file taxes.
Above all else, separating your home and work expenses becomes time consuming. In other words, the longer it takes you to compile paperwork, the less (paid) time you will spend working on clients’ projects.
As a result, your lost income might end up costing you more than transfer fees or monthly account maintenance charges.
Making a Decision: The Best Freelance Bank Account for Your Business
Every freelancer’s finances are unique. Just as importantly, each bank’s offerings have their own pros and cons. What may be a downside to one person is not necessarily be a problem to another.
Because of this, when you choose a bank account for your freelancing business, pay attention to how quick and easy it is to transfer funds.
If you use a separate bank for personal funds, having access to Zelle on each of your accounts can make transactions even more convenient and less costly. On that note, the monthly maintenance fees and transaction should also be within your budget.
In short, the easier it is to access funds and move money between your accounts, the less time you have to spend on paperwork and cashflow management.
As a result, you can continue to focus your energy towards paid work and clients’ projects.