When you are self-employed, it’s often recommended that you use a separate checking account for the business, to make a clean separation between the business and personal income and expenses.
It’s not hard to find a bank or credit union that offers a free personal checking account with no minimum balance required. If the account has a monthly fee, usually you can get the monthly fee waived when you have direct deposit. If you need a business checking account, you will find the deal isn’t nearly as good as in a personal checking account.
Many credit unions don’t even offer business checking accounts. Neither does Ally Bank, which is popular among consumers. Banks that do offer business checking accounts often set a higher requirement for waiving the monthly fee. For instance Chase in my area requires a minimum daily balance of $1,500 to waive the fee on its most basic business checking account, which doesn’t pay interest. The fee isn’t waived with direct deposit. In my area only U.S. Bank and BBVA Compass Bank offer a free business checking account with no minimum balance. Those accounts don’t pay interest either.
I have very simple needs for my business checking account. I receive income by direct deposit and PayPal. I pay expenses by direct debit or a debit card. The money piles up in the account until the end of the year. After I close the books I make contributions to my solo 401k account. If there’s any leftover profit, I pay myself. The cycle then starts over for another year. I never deposit or withdraw physical cash. I imagine this is the case for many non-retail self-employment business.
For these simple needs I opened a Fidelity Account for Business. It’s a brokerage account in the name of the business. The account has no monthly fee. It doesn’t require any minimal balance. The default money market fund earns a good interest rate. I’m set up as an authorized person for the account. It shows up with my other Fidelity accounts under the same login.
Direct Deposit and Direct Debit
The account has a routing number and account number for receiving direct deposits and direct debits. Money in the account goes into a money market fund by default. The money market fund pays about 2% interest right now. Because it’s a brokerage account, I can also buy Treasury bills for slightly higher yield with no fee. If you’d like to just leave the money in the money market fund, that’s fine too. You are not required to make any trades.
Direct deposits initiated externally (“pushed in”) are made available immediately. Check deposits and ACH transfers initiated from Fidelity (“pulled in”) are subject to a hold of 4 business days. You still earn interest on the money when it’s on hold. You just can’t withdraw or spend the money before the hold comes off. Because I don’t make any check deposits or initiate any ACH transfers from Fidelity, this hold policy doesn’t affect me.
You can request a free checkbook online. When you are about to run out, you can ask for another book. It’s all free. If you receive paper checks, you can deposit them through Fidelity’s mobile app.
I write a check when I contribute to my solo 401k plan and when I pay myself any leftover profit. Because the account is in the name of the business, not your personal name, you can’t add a link to a personal account. If the bank where you have your personal account allows you to add a link to the Fidelity account, you can do the linking there.
No Debit Card
Strangely the Fidelity business account doesn’t offer a debit card. I could get a business credit card elsewhere and use the credit card for expenses. I didn’t because I wanted to keep it simple and not manage another account.
I solved it by getting a debit card from PayPal. The Fidelity business account is already linked to the PayPal account for the business. Money received by PayPal is automatically deposited daily to the Fidelity business account (call PayPal and ask customer service to enable Auto Sweep). When a charge comes to the PayPal debit card, PayPal debits the linked Fidelity business account.
No Online Bill Pay
Fidelity offers online bill payment service on personal accounts but not on the business account. You can give your account information to the vendor and have them pull the money. It’s more difficult if you need to pay an independent contractor who can’t do EFT drafts. You can write paper checks and mail them yourself though.
No Online Wire Transfers
Fidelity offers free wire transfers to your linked accounts for personal accounts but not for the business account. You may be able to fill out a paper form and do a one-off wire transfer, but it’s not possible to do so online.
I have been using this setup for some time. Despite some limitations, it works perfectly for my simple needs: money in, money out, no minimum balance, no fee, pays good interest. It would be better if it offers a debit card but I found a workaround. If you normally use a business credit card for expenses, you don’t even need a debit card.
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