How much are you losing from low-interest business bank accounts?

Have you ever considered how much those low interest rates are actually costing your business?

It's not just about the few dollars you miss each month. It's about the missed opportunities – the marketing campaigns, equipment upgrades, and employee bonuses that could be funded with that money. 

If you are not aware, you're wasting a lot of money by keeping these low-interest business bank accounts. 

The hidden costs of low-interest accounts

Opportunity cost, also known as the cost of missed potential, is the silent thief of your business finances. When your money sits in a low-yield account, it's not working for you. It's like having a talented employee sitting idle instead of contributing to your company's success. The money could be invested elsewhere, generating significantly higher returns and fueling your business growth. Imagine the possibilities if those funds were put to work in stocks, bonds, or even other high-interest business savings accounts.

Let's illustrate this with an example:

Your business has $50,000 in a business savings account, earning a meagre 0.5% APY. In a year, you'll earn a mere $250. Imagine if you invested that same $50,000 in a diversified portfolio, yielding an average of 7% per year. You could potentially earn $3,500 annually - that's $3,250 more than what your low-interest savings account would offer! Over five years, that difference amounts to a staggering $16,250.That lost interest could add up to the cost of a new car, building another business, a down payment on a house, or even a college education for your kid.

This lost potential is the opportunity cost for choosing a low-interest account. It's the difference between what you could earn and what you're earning. The longer your money remains stagnant, the higher the opportunity cost becomes.

The compounding effect: interest earning interest

In a high-yield account, your initial deposit (₱500,000 in our example) earns interest. But the magic happens when that interest isn't just paid out – it's added back into your account. Now, not only is your original ₱500,000 earning interest, but the newly added interest starts earning interest, too!

This cycle repeats itself, with your interest continuously earning more interest. Over time, your earnings snowball, growing faster and faster as the interest piles on top of itself. That's why it's called the "compounding effect."

Let's see how this works in real numbers using a high-yield account with 4.5% APY:

• Year 1: You start with $500,000. It earns $22,500 in interest (4.5% of $500,000). This is added back to your account, giving you $522,500.
• Year 2: Now, you're earning interest on $522,500. You earn $23,512.50 in interest, bringing your balance to $546,012.50.
• Year 3: Your $546,012.50 earns $24,570.56, growing your balance to $570,583.06.
• Year 4: Interest of $25,676.24 is added to your $570,583.06, giving you $596,259.30.
• Year 5: By the end of year five, another $26,831.67 in interest brings your total balance to $623,090.97!

Notice how, each year, the amount of interest earned increases? That's the compounding effect in action.

Don't get played: how to pick the right business bank account.

While personal accounts are often plagued by low interest rates, business accounts offer a whole new world of possibilities. Don't be fooled by flashy perks and "free" checking – focus on finding a business bank account with a competitive interest rate that will help your money grow.

Most importantly, your main goal as a business owner is to find convenience and peace, not to pay unreasonable fees and will allow you to access your funds without any hassle. Let's be honest – as a business owner, you probably didn't start your company because you love wrangling bills, deciphering cash flow reports, or prepping for BAS lodgement. You're passionate about your product, your service, your customers... not the nitty-gritty financial tasks that keep you up at night.

To make sure you won't be stuck alone, choose a business bank that:

• Offers dedicated business support, including knowledgeable account managers and accessible customer service. Look for a bank with a reputation for being responsive and helpful, especially during critical times like tax season or unexpected financial challenges. 
• Streamlines your financial operations with automation. Opt for a bank that leverages technology to simplify your life. This includes features like automated bank reconciliations, which can save you countless hours each month and reduce the risk of errors, ensuring your financial records are accurate and up-to-date.
• Offers no-fee savings accounts. Having a separate business savings account can help you set aside funds for taxes, emergencies, or future investments. Choose a bank that offers a no-fee business savings account with competitive interest rates, allowing your money to grow while you focus on running your business.

Other than checking whether the business bank has a debit card or physical location, their minimum balance, we also elaborated other things you need to consider when choosing the right business bank.

We further elaborated how you can properly choose high interest accounts here in Australia.

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Thriday is an online business banking* and business finance management platform designed specifically for small businesses and sole traders in Australia. We automate accounting tax preparation and budget allocation. Create a transaction account today with Thriday to enjoy these time-saving features!

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Frequently asked questions

What are the best business bank accounts in Australia for small businesses?

The best business bank account for your small business depends on your specific needs. Some popular options include:

• Thriday: Offers a $0 monthly fee transaction account with unlimited local transactions and no monthly account fees.
• NAB: Provides a range of business banking solutions with varying fees and features.
• Commonwealth Bank: Offers a variety of business accounts with different fee structures and benefits.
• ANZ: Provides a range of business banking products and services, including transaction accounts, savings accounts, and loans.

What should I look for in a business bank account in Australia?

Consider the following factors when choosing a business bank account in Australia:

• Fees: Monthly account fees, transaction fees, ATM fees, and international transfer fees.
• Interest rates: This is especially important if you plan to keep a significant balance in your account.
• Features: Online banking, mobile app, invoicing, expense tracking, and integration with accounting software.
• Customer service: Accessibility and quality of support, including phone, email, and in-person assistance.

How do I compare different business bank accounts in Australia?

Use comparison websites or tools to compare fees, interest rates, and features of different business bank accounts. Consider your business needs and priorities to determine the best fit.

What documents do I need to open a business bank account in Australia?

Generally, you'll need your Australian Business Number (ABN), business registration documents, identification documents (e.g., driver's license, passport), and proof of business address.

Are online-only business bank accounts in Australia safe?

Yes, reputable online-only banks in Australia are safe and secure. They are regulated by the Australian Prudential Regulation Authority (APRA) and often offer the same level of security as traditional banks.

A word to the wise

High-interest business bank accounts aren't just a passing trend—they're a high-octane fuel for your company's growth engine. Choosing a low-interest account is like powering a race car with regular gasoline. Sure, it might sputter along, but it'll never reach its full potential or cross the finish line first.

Your hard-earned profits aren't meant to sit idle. They're the raw materials for innovation, expansion, and reaching new heights in your industry. High-interest accounts act as a turbocharger, accelerating your financial momentum and giving you the resources to outpace your competition.

Refrain from settling for a sluggish engine when you can have a high-performance machine. Upgrade your business bank account to a high-yield option and watch your financial horsepower surge.