Starting a Business in Canada

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Jun 3, 2011 - 3 minute read - banking

Types Of Business Bank Accounts

Business accounts basically come in three flavours; operating accounts, savings accounts and U.S. dollar accounts. There are many variations of these three types as banks and credit unions add features to try to gain competitive advantage but ultimately beneath the window dressing, it’s just these three basic accounts.

Operating accounts are for the day to day activities of the businesses. Business owners can write cheques on these accounts or use a debit card to make purchases, much like a personal bank account. Business accounts are quite different though when it comes to fees charged to the account holder.

These accounts will have often have a flat month fee plus fees for each transaction. Business accounts are charged for deposits based on the content of the deposit. For example, one bank is charging $1.80 for every $1,000 in paper cash deposited and $1.80 for every $100 in coins deposited. There is also an approximately $0.16 fee for each cheque contained in a deposit. Cheques & deposit books are more expensive than those for personal accounts. Night deposit will cost extra as will the disposable plastic bags for the drop. Some institutions may offer a bundled price monthly price for a certain level of transactions.

Business savings accounts generally don’t have chequing privileges but most institutions allow a couple of free transfers to an operating account each month. The rate of interest paid on these accounts is usually tiered so that larger balances earn more interest. For example, it might take a $100,000 balance to earn 1%. As a rule, these accounts aren’t worthwhile and surplus cash should be used to buy short term investments instead.

Foreign currency accounts are available from most institutions. The most common is the U.S. dollar account because of the large number of Canadian companies that export down south. These accounts work much like operating accounts but the fee structure might be slightly higher. Financial institutions will take a commission whenever one currency is changed to another. This means that the exchange rate you see on the news won’t be the rate you will be getting at the bank. The commission varies according to the amount of money being exchanged. A transfer between an U.S. dollar account and an normal operating account will trigger these commissions. If you are consistently exchanging large amounts of money from one currency to another, it’s probably worth a conversation with your bank to see if setting up a specialized foreign exchange trading account makes sense for you.

With all of the options available, business accounts can be confusing but it you remember these basic account types it will be easier to choose the one that is right for you and your business.