Both personal and business bank accounts play a huge role in our lives, from daily matters to workflows, and a business checking account offers improved cash flow and financial management tools as companies grow. But what is exactly the boundary between these two accounts from the perspective of financial services?
In this article, we will talk about banks, financial service providers, online banking, personal and business checking accounts, their common services, and their differences.
What are financial accounts?
Business and personal accounts are essential tools for managing personal and business finances. They provide a secure and organized way to store, track, and manage money. There are various types of financial accounts, including personal and business bank accounts, each designed to serve specific purposes.
Understanding the differences between these accounts is crucial for effective financial management. A business bank account, for instance, is designed to manage business transactions, while a personal bank account is meant for personal expenses.
By distinguishing between business and personal finances, individuals and businesses can ensure better financial control, cash flow, and organization.
Types of accounts
There are several types of financial accounts, including checking accounts, savings accounts, and credit card accounts, among others.
Personal accounts, such as personal checking accounts and personal savings accounts, are designed for individual use, while business checking accounts, like business checking accounts and business savings accounts, are tailored for business purposes.
Business bank accounts often come with features like merchant services, business credit cards/debit cards, and cash flow management tools, making them ideal for managing business finances. On the other hand, personal bank accounts are suitable for storing personal income, paying bills, and making personal transactions.
Understanding the specific functions and benefits of each type of account, be it a personal or a business checking account, can help you choose the right one for your needs.
What is a regular bank?
A bank is a financial institution that provides banking services, including deposits, credit, and payments. Banks also facilitate transactions through the Automated Clearing House (ACH) Network, which processes eligible direct deposits from employers or government agencies. This financial institution carries out credit and financial transactions. The term bank can generally refer to the banking sector.
Banks play an essential role in the stability and functioning of the financial system and are generally subject to significant prudential supervision by the state.
Banking functions
A bank is an institution that has the following functions:
Offers business banking services such as loans, receipt of deposits from the public, and payments;
Performs trades and distribution, either directly or through relations with banking intermediaries;
Performs trades in other related services, such as investment services, insurance, or any other service.
Online banking
Online banking offers access to banking services from an interactive interface, such as a web browser or an application, using an internet connection. Online banking can be accessed by smartphone, personal computer, tablet, from an automatic teller machine (ATM), by laptop, or using a personal assistant (PDA) with internet access.
Its availability allows clients to access online bank accounts, carry out transactions, or obtain recent financial information. The connection is ensured by secure protocols and measures. Online banking services are available for both personal and business banking, providing a convenient way to manage finances from anywhere.
What is a financial service provider?
A financial service provider is any institution that manages money on behalf of a client. These institutions offer various services, including the ability to pay bills, manage deposits, provide credit, better oversee cash flow, and manage business banking tools.
For instance, financial service providers include banks, credit companies, finance businesses, eMoney issuers, insurance businesses, and many other payment institutions. Thus, the concept of a financial service provider is logically wider than that of a bank itself, along with online banking.
What is a personal bank account?
A personal bank account is a financial space for an individual that facilitates all money-related actions. A personal checking account is kept by a bank on the basis of a bank account agreement concluded with its holder(s), as a bank account may also be kept by several individuals.
The bank account holder may freely dispose of the funds accumulated on an account as long as the agreement with the bank does not contain provisions restricting the freedom to use these funds.
A personal checking account is something we all know from our daily life experiences. We use it to pay and to be paid, to send money, and to withdraw cash. Also, we have options to save money, make deposits, and obtain credits.
While a personal checking account is essential for individual financial needs and personal expenses, having a separate account for business is crucial for managing business banking finances effectively.
Naturally, a personal bank account aims to support the daily financial life of a customer as much as possible. For that, banking institutions offer basic services along with advanced ones. The same deal is with online banking. They issue digital wallets for clients and propose various useful services for personal finances.
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Main functions of an online personal bank account
The account allows to:
Issue bank payment cards;
Issue virtual payment cards;
Receive money from individuals and organizations or companies;
Send money;
Make singular and recurrent card payments;
Withdraw cash;
Make savings;
Manage personal finances.
Security
Normally, digital wallets can be accessed via a provider’s website or application. Regarding security, digital wallets are very well protected. There are basically three main directions: fraud protection when accessing an account, fraud protection when using financial services, and international compliance.
When accessing an account via smartphone, tablet, or desktop, a fraud protection system is responsible for identity verification. There is a mechanism called two-factor authentication or simply 2FA. It requests that a user present a minimum of two identification methods. They can be the following:
something a user knows, like a password or code;
something a user has, like a phone;
and something a user has, such as a fingerprint or a face recognition;
Fraud protection is available when using any of the financial services. It exists to protect a user from card theft, fraud, or account hacking. This mechanism is usually AI-powered and has around 12 different categories to verify if it really is the account holder that currently uses the account or card.
For example, a bank client lives in Romania and normally shops in supermarkets, online for some gardening, and withdraws cash once a month. If a fraud prevention system suddenly detects that the next day, this cardholder buys online video games from another European country, for example, Italy, there’s an alert. The system will send a double verification notification to a user and can even block the card.
Finally, international compliances and regulations exist for all financial institutions, including banks. Following them is obligatory. Surely, there are some institutions that do not comply, but when discovered, the company can be fined, closed, and even have a criminal threat. And besides that, from the client’s perspective, it is way better to trust the money to some reliable institutions.
Maintaining secure financial practices is essential for building credibility, which can be crucial when applying for a small business loan.
What is a business bank account?
A business bank account is the same but with more advanced features that help companies manage their funds better. So, it has all the same functions as a personal checking account, plus dedicated financial tools for companies.
However, business bank accounts may come with different fee structures, including maintenance fees, which should be considered when choosing an account.
Sure thing, the range of functionalities would depend on what a particular business needs. So, we can see that a freelancer’s requests would differ from those of a big corporation.
Normally, the main goal of an online business bank account is to give separate space for business funds and not to mix them with private funds. Another thing is about taxes. If all the business transactions happen in one space, it is more simple to follow them and sum them up in the end.
Also, business bank account holders can share the same bank account and assign roles for other team members, for example, to an accountant department. Lastly, separate business bank accounts allow better supervision over departments’ finance flow.
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Here are some benefits of an online business account
Keep the business and personal funds separately;
Manage business expenses;
Deal easier with taxes;
Get business loans;
Share roles and assign responsibilities between departments;
Supervise each department’s financial flow;
Access advanced account analytics;
Provides specialized features tailored for business needs vs personal checking accounts, which are designed for individual use.
There is one more big difference between personal and business accounts. Having a personal account allows an individual to grow into a business account, which is pretty much the same deal, especially for freelancers and bank business accounts for small businesses.
A business account allows a business to start a merchant account. This is another thing altogether and will most likely require additional account fees. A merchant account does not allow its holder to send money, make payments, use savings, credits, and most of the transfers. It has only one role: a merchant account allows big companies and small business owners to accept card payments.
When the money arrives at the merchant account, only one action can be done: it can be transferred to a business account of the very same company. That is it. However, to have a merchant account, a business should open a business checking account.
Personal bank account vs. business bank account
The main difference between a personal bank account and a business bank account is in the purpose. A personal account serves individuals and their financial needs, while a business account sustains businesses of any size, including freelancers.
That is why personal accounts would slightly differ from each other in terms of the main purpose, such as checking or savings accounts, and also by ownership, as an account can belong to one adult, family, or child.
Business accounts have more features. Imagine just the range of services a regular freelancer would need – compare it to what a small business needs and, finally, to what a corporation would require.
For instance, a graphic designer might need to be paid and properly declare taxes. A small corner bakery would need, on top of that, some financial analytics tools and maybe a shared option to include an accountant to better manage business expenses.
A huge movie streaming service would approach the business account in a much more advanced way, starting with analytics and shared roles and finishing with the symbiosis with its merchant account.
Personal bank account vs. business bank account:
Personal account | Business account | |
Having a physical and/or virtual card | + | + |
Sending and receiving transfers | + | + |
Making payments | + | + |
Receiving salaries | + | + |
Sending salaries | – | + |
Making savings | + | + |
Sharing account | with family members | with colleagues |
The next level of the account | business account | merchant account |
Who can have an account? | an individual, a family, or a child under the parents’ supervision | a freelancer, a small business, a medium business, a big business |
A possibility to open it in the physical brunch | + | + |
A possibility to open it online | + | + |
Benefits of separate accounts
Keeping personal and business finances separate is vital for maintaining clarity and organization in financial management.
A dedicated business account helps to distinguish business expenses from personal expenses, making it easier to track business income and expenses. This separation also simplifies tax reporting and compliance, as business transactions are recorded separately from personal transactions.
Moreover, having a separate business bank account can enhance a business’s credibility and professionalism, especially when dealing with suppliers, customers, and financial institutions.
By maintaining separate accounts, business owners can ensure better financial control and avoid the pitfalls of mixing personal and business funds.
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Choosing the right account
Selecting the right financial account depends on individual or business needs. For personal use, a personal checking account or personal savings account may suffice. However, for business purposes, a business checking account or business savings account is more appropriate.
When choosing a business bank account, consider factors like account fees, minimum balance requirements, and the availability of merchant services and business credit cards.
It’s also essential to compare different financial institutions to find the one that offers the best services and terms for your business needs. By carefully evaluating these factors, you can choose an account that best supports your financial goals.
Tax reporting and compliance
Tax reporting and compliance are critical aspects of financial management, especially for businesses. Keeping personal and business finances separate makes it easier to prepare tax returns and comply with tax laws.
A business bank account provides a clear record of business transactions, which is essential for accurate tax reporting.
Additionally, having a separate business account helps to avoid commingling personal and business funds, reducing the risk of audits and financial liabilities.
By maintaining separate accounts and using accounting software, businesses can ensure compliance with tax regulations and avoid potential penalties. This organized approach to financial management not only simplifies tax reporting but also supports overall business health.
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Benefits of Genome: open personal and business accounts
Genome is an electronic money institution that provides business and personal accounts. It permits a user to benefit from a full financial ecosystem.
Genome also allows users to start multi-currency business accounts in 11 currencies: EUR, GBP, USD, PLN, CHF, JPY, CAD, CZK, HUF, SEK, and AUD, performing a currency exchange between them.
Moreover, you get access to SEPA Instant and Credit Transfers, as well as virtual and physical and virtual Visa cards for your business.
Start an account for business online and benefit from all these features and more!
FAQ
What’s the difference between a regular bank account and a business account?
A regular bank account is called a personal bank account, and it serves the individual financial needs of a client. A business bank account belongs to a business of any size, such as a freelancer, small business, medium business, or corporation, and it serves each particular need of a company.
Both personal and business accounts have the same set of essential financial services. To open a business checking account, you may need to provide documentation such as a business license and proof of identity.
What is a bank? How does a bank differ from most other financial service providers?
A financial service provider is any company that manages a client’s money on their behalf. A banking institution is a part of financial service providers. Its field of services includes business banking services, including deposit, credit, and payment.
Banks play a crucial role in providing financial services to small business owners, helping them manage their finances inside business bank accounts and grow their businesses.
What is the difference between banking and finance?
Banking is a part of finance. Other finance companies could be, for example, payment service providers, e-money issuers, or insurance companies.
A bank is a financial institution that carries out credit and financial transactions. Effective management of business money is essential for the financial health and growth of any business.
