Business savings accounts 3

[glass99]

Now that we are in a period of higher interest and inflation rates its not so great to have money sitting in my business checking account earning zero interest. Do all you small S corp owners as a matter of course transfer money a lot from your personal savings to your business accounts, or does that create accounting headaches? Or does anyone know of any good business savings accounts?

 

[phamENG]

money flows from the business to personal - only time it does the opposite is when there's a cashflow crunch and I need to cover an expense. My attorney warned me that blurring the line between company finances and personal finances is the easiest way for opposing counsel to 'pierce the corporate veil' and come after personal assets.

I've thought of it...but haven't done anything with it. A friend suggested this one. I'm not saying anyone should use it - I still need to research it a bit but it looks pretty good on the surface.

 

[SWComposites]

Check into money market accounts at banks.

 

[glass99]

@phamENG: Does WealthFront support small business savings accounts? It doesn't appear like they do and the issue I keep having is all the online savings accounts are for individuals.

@SWComposites: good thought about Money Markets. A lot of those seem to be very limited on the business side too but there does seem to be some options at least.

 

[LittleInch]

I just searched for business savings accounts. You get a variety of options for fixed periods or instant access. Not as good as personal rates, but I think I'm on 2.3% annual rate, paid monthly. At least that's possible in the UK. So Keep everything separate apart from wages, dividends and expenses.

The greater the number of transactions and instant access the lower the rate.

I could do director loans, but it's not worth the hassle and there are all sorts of personal tax issues because then the interest received is income which the gov't wants its share of. In the business it goes into the P&L account as almost minor income unfortunately, but all adds up over the course of a year.

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[XR250]

I transfer money from Business to Personal every few months. I am an LLC.
I then transfer it into a high-yield money market or invest it or pay down my mortgage or pay kids tuition etc.
I rarely have to transfer the other way.

 

[glass99]

@XR250: Up until now I have been doing one way transactions from business to personal but I do need to keep a decent amount of float because of the irregularity of my clients' payments and my need to meet payroll/rent/etc that I would love to be getting some interest on. Frequently I go three months with little or zero income then in one month get triple income. I think that some firms use a line of credit at a bank to keep close to zero cash in their checking but I am pretty debt averse do don't love that.

@LittleInch: Here in the US there are lots of business savings options but they all have weird strings attached. Like USBank has one with an intro rate for 6 months of 4% that goes down to 0.15% afterwards. Or some weird internet bank I never heard of (like Live Oak Bank).

 

[structSU10]

Look into a sweep account with your bank. Not sure if there is a minimum balance threshold but they are a nice way to maintain liquidity and gaining interest on what you can.

 

[SWComposites]

glass99 - assuming you are a sole proprietor (or maybe even an LLC), the other option is to open a separate "personal" money market account that you dedicate to business use; only transfer money to/from your business checking account, never to your actual personal accounts; the bank doesn't need to know what the account is used for.

 

[glass99]

@SWComposites: I would love to just have a personal account but there is this whole thing about "piercing the corporate veil" which means losing the limited liability protection of my S corp if I get sued and a plaintiff can go after my personal assets. Though bc I am a PE I may be overstating that risk bc I am personally stamping documents anyway with getting sued for design errors is by far my biggest risk.

@structuSU10: I have never heard of a sweep account but will look into that. Sounds perfect if it happens automatically and goes into a money market with decent interest. Do you know of any good providers of that?

 

[SWComposites]

glass - thats why I stated to treat it as a business account, never mixing funds with your personal funds. But since you are an SCorp it could be a problem as presumably you want the SCorp name on the account.

 

[IRstuff]

Isn't the equivalent of "malpractice" a personal liability anyway; I thought that's why you need personal E&O liability insurance? It's certainly true for doctors, particularly in California; when they get sued for malpractice, anything that they own is subject to claims, regardless of whether there's any corporate or LLC structure.

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[phamENG]

IRstuff - it's common in civil engineering consulting practices (civil, structural, geotech, etc.) for company policies to either cover employees directly OR the company agrees to indemnify the employee. Personal E&O policy are incredibly rare. Also, because salaries in our world are usually on the low to modest side (when compared to other professions where malpractice liability is a concern), it's often seen anecdotally as a target. Most engineers that don't own a mid-sized firm or larger don't have enough assets to make a lawsuit "worth it", so why add a $1M pool of cash for them to come after?

 

[IRstuff]

@phamENG

Thanks for the clarification

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[glass99]

@IRStuff: My E+O policy covers both the firm and me personally.

The general wisdom is you don't want to have a lot of assets in your firm bc if you do get sued you will lose it. For that reason firms generally rent rather than own their office space bc its a big extra step for a plaintiff to come after you personally. I was just chatting with a colleague at Gensler (the giant architecture firm), and he was saying that there is one guy in his studio that stamps everything. Gensler gets sued all the time but I never hear about individuals there getting named. Solo practitioners and small firms are often unincorporated so in that case your personal assets would be more exposed I imagine. I am keen to preserve that separation, but would also like to get 5% on my checking account if possible!

 

[structSU10]

We had set it up directly through the bank that holds our accounts. I wasn't part of the discussions for setup so unfortunately my knowledge is all secondhand, so I am unsure of others who may offer it. Money plus interest is moved automatically - every day in our case - based on the set thresholds.

I would think a discussion with your bank may give you some leads.

 

[LOTE]

I use Quickbooks online and use their Quickbooks Checking Account (through Green Dot Bank). It gets 1.25% which is one of the higher business checking account rates I have seen. If you are already using QBO, it works very seamlessly. I do not feel the need to chase after rates beyond that as I try to keep a lower balance in my business account to limit what can get touched in a lawsuit. If you have $10,000 in there for a few months of expenses when work is slow, the additional couple $100 is not worth the hassle of most business savings accounts or the risk of co-mingling business/personal assets and piercing the corporate veil. Just my $0.02.

 

[glass99]

@LOTE: Good tip about Quickbooks and Green Dot integration. I had not heard of it. Though my bare bones expenses are more like $30k/mo so I typically keep >$100k in my checking account, and am looking at 4% interest if I go with Live Oak Bank.

 

[hvacSLOG]

I would look into opening a business brokerage account with vanguard or similar. Then you can easily transfer funds and buy an ETF that tracks the US dollar like vusxx… I think it’s paying more than any personal savings account. But then again, maybe see what happens after June 1…

 

[glass99]

business brokerage account with vanguard or similar. Then you can easily transfer funds and buy an ETF that tracks the US dollar like vusxx

Thanks for this great suggestion: VUSXX pays 5% which is great. Couple of smaller issues I am running into: when you pull money from a money market there is a settlement time of about 6 business days plus an ACH transfer time of about 2days if you have a brokerage account not in the same institution as your checking account, for a total for ~2 weeks to get access to the money. The second issue is that opening a business brokerage account has a bunch of paperwork hurdles including a multi week review period.