As a small business owner, every ounce of working capital can make a difference. Even if you have wiggle room in your bottom line, why give up money for bank account fees that you can avoid?
Since the rules for business bank accounts and personal bank accounts are often wildly different, it’s important to understand how business banking works and the fees you can face. More importantly, you’ll want to know how to avoid them.
Here are 10 ways small business owners can avoid paying unnecessary banking fees, plus some suggestions to stay in good standing with your financial institution.
1. Read the fine print so you understand bank charges.
Terms and conditions are long and easy to scroll past—but you can’t treat your business bank account like you treat the cookies on a random website.
Oftentimes, hidden fees and additional charges can be buried in the fine print for a customer signing up for a new account. That’s why it’s crucial to take the time to read the terms and conditions before signing up for a business bank account. This allows you to check fees and make sure that the account is right for you before you sign on to anything. You may find, for example, that upgrading to a higher paid tier will actually save you money.
Understanding what a bank offers and where you might get hit with extra fees also allows you to shop around for a business bank that best suits your needs and, ideally, keeps fees upfront, transparent, and low cost.
2. Use an online bank to enjoy lower fees.
The reality is that online (or branchless) banks have lower overhead costs than traditional financial institutions. This often allows them to offer lower rates for business banking than some of the more well-known names with brick-and-mortar branches.
According to the Bank Fees Survey 2023 by MoneyRates, more than 74% of online checking accounts have no monthly maintenance fee, more than twice the rate (37%) of traditional accounts.
Online banking also has a number of other advantages. You can:
- Access your information 24/7
- Utilize a host of features to help keep track of your finances
- Do your banking from anywhere with a phone
- Access a larger network of ATMs
- Enjoy a highly tuned website and mobile banking app
- & more
While online banks don’t always offer more specialized services, they’re usually a much better fit for newer or smaller businesses than traditional bank accounts (mostly because of the lower fees).
3. Only use ATMs associated with your checking account.
ATM fees are one of the most common bank fees—and also one of the easiest to avoid. If you frequently use your business checking account debit card at out-of-network ATMs, those fees can add up.
Often, ATM fees are double: taking out money can lead to a fee both from your bank and the ATM that you’re using! That’s why it’s so important to plan ahead and use your bank’s ATMs or approved machines in your bank’s network.
If you have to get money out at an ATM that isn’t affiliated with your bank, we recommend taking out a large one-time sum if possible. That way, you’re not incurring additional fees for each smaller withdrawal.
4. Avoid overdrafts by managing cash flow and knowing your account balance.
As a small business, budgeting your cash flow (aka the money coming in and out of your accounts each month) is crucial for your success. When you aren’t aware of how much money you’re taking out of your account, it’s easy to slip into overdraft. Major banks pulled in about $8.5 billion dollars in overdraft fees in 2021—a notable decline from previous years, but still a massive amount.
Looking at overdraft fees on an individual scale, the Federal Deposit Insurance Corporation (FDIC) says the average overdraft fee is $35 per transaction.
Knowing how much money is in your account is the easiest way to avoid overdraft fees. This includes being aware of how ACH transfer processing works. Often, ACH payments take a few days to clear (sometimes up to 5–7 business days). However, your bank won’t automatically deduct that transfer from your balance if it’s still pending. You could unwittingly overdraft your account (and/or get hit with a bounce fee) if you don’t make that quick math calculation.
It is often better to put expenses on a credit card that you can pay off towards the end of the month than take the hit for an overdraft for insufficient funds. Alternatively, you can sign up for overdraft protection through your institution (just be sure you know the terms so you can act accordingly).
Pro tip: Banks waive overdraft fees at their discretion. According to the FDIC, your chances of getting an overdraft fee waived are better if you stay in good standing with the account, such as sustaining a minimum balance or directly depositing client payments. The FDIC adds, “Ask if other fees can be waived with the direct deposit.” After all, negotiation is commonplace in financial relationships.
5. Know monthly limits and pay attention to them.
A lot of banks put a limit on the number of times per month you can make transactions without an added fee. This may be for transactions like ATM withdrawals, debit payments, ACH or wire transfers, and more.
When you exceed the number of free transactions allotted, the banks start hitting you with transaction fees.
Alice Hall, co-founder and creative director at Rowen Homes, adds, “Some banks levy a transfer fee for each transaction or deposit that exceeds a certain amount.”
Knowing monthly limits is a great way to save some additional cash—but even better than that is finding affordable business banking that doesn’t impose those kinds of limitations. If your business primarily makes cash deposits, Hall adds, “Find a bank account with a high cash-deposit threshold before fees apply.”
6. Know your minimum balance (or get a bank without a minimum balance).
Many banks will waive fees for customers who maintain a minimum daily balance as an incentive for posing less risk on the financial institution.
If you’re the type of person who doesn’t like monitoring your account on a regular basis, there are solutions. Lyle Solomon, principal attorney at Oak View Law Group and long-time financial advisor, says, “Set account balance alerts so that you are notified if the balance in your account becomes dangerously low.”
Alternatively, choose from one of the many great business bank options with no minimum balance requirements, like Novo, NorthOne, or another option.
7. Use a payment processing software solution with lower fees.
Credit card payment processing fees can be a bummer, but there are ways to mitigate the costs. Brooke Qilafi, owner of Qilafi Public Relations, learned this firsthand.
As part of her business launch, Qilafi opened up a Bank of America business bank account, which charges a higher credit card payment processing fee for cards that are not physically present to swipe. “As someone who offers PR services to clients in various locations, I did not have the option with Bank of America to avoid or lower the 3.5% fee,” Qilafi says.
Qilafi was able to solve the problem by using Squarespace. “This allows me to link my bank account, create and send invoices, and have the funds sent via direct deposit to my bank account (without having to ask my clients for their card information),” Qilafi says, all for a lower fee.
8. Make sure you’re using the right services for your industry.
Different banking services cater to different business industries. For example, say there is an insurance company that serves healthcare companies. Their bank may wrongfully list them in the healthcare industry. By correctly identifying their industry, the insurance company may be able to get better interest rates on services like a loan or line of credit.
Lyle Solomon of Oak View Law Group says, “The best way to avoid unnecessary bank fees is to choose the banking service that best fits your needs. Banks have different fees, and you have to analyze them individually to see where you save the most per your needs and usage.”
9. Go paperless.
More than half of American adults (54%) still receive paper statements in the mail, according to the Community Bankers Association of Georgia. However, paper statement fees range from $0–$6 at the top 21 banks. Times that by 12 and you can spend upwards of $72 per year on paper statement fees alone.
By simply agreeing to receive electronic statements, you can avoid these fees entirely. Alternatively, you can find a bank that doesn’t charge for paper statements—but as sustainability goals become increasingly important at financial institutions, this may become more difficult as time goes on.
10. If you need employee cards, use a bank that offers them at no cost.
If you’re a small business owner with employees and you want to get them their own credit or debit cards, avoid banks that charge to add employee cards. While there are an increasing number of banks offering this perk, Ramp is a great example of a company instating this from the start. Ramp’s custom-branded physical employee credit cards come at no additional cost.
If employee cards are a must, keep this on your radar to avoid unnecessary banking fees.
Last word on avoiding business banking fees
The small business dream is having enough money to maintain operations while simultaneously investing in growth. Avoiding business banking fees helps the cause.
Keep these 10 tips for avoiding business banking fees in mind as you launch or maintain your SMB. That way, you can maximize your working capital and keep your cash flow in the clear.