Most UK Ltds I’ve seen leave too much cash sitting in current accounts earning nothing, while VAT and Corporation Tax bills loom. A business savings account isn’t just a “nice to have”; for a profitable small Ltd it’s a basic discipline. This guide walks through when to open one, what to compare, and how to use it as a cash flow tool rather than just a parking spot.
When a business savings account makes sense
Five clear triggers. You hold more than 1–2 months of operating expenses in cash. You’re VAT-registered (so you collect VAT on behalf of HMRC and need somewhere to keep it segregated). You’re profitable and accruing Corporation Tax through the year. You want to spread FSCS protection across institutions because your balance approaches £85,000. You want interest, not just storage. Most growing small Ltds tick at least three of these within their second year.
FSCS protection and why it matters
The Financial Services Compensation Scheme protects up to £85,000 per institution per business depositor if a bank fails. The protection applies across all current and savings accounts at the same institution, not per account. Multiple institutions = multiple £85,000 protections. E-money institutions (Tide, Revolut, some neobanks) do NOT have FSCS protection on their default product – their funds are “safeguarded” instead, which is a different regime with weaker protection in practice. Some e-money providers now offer FSCS-protected accounts via partner banks; read the fine print before assuming.
What to compare
Interest rate (AER, gross or net of any fees). Access type – instant, notice, or fixed-term. Minimum and maximum deposits. Withdrawal limits per month. Online-only versus branch availability. FSCS protection. Time to set up – some providers take weeks. Compare on Moneyfacts or Savings Champion; the rates change frequently and the leader board moves.
Account types
Easy access: full liquidity, lower interest. Best for tax money you might need at short notice. Notice account: 30/60/90 days’ notice for withdrawals, slightly higher rate. Good for the buffer fund. Fixed term: 6-month to 5-year terms, highest rates, no early access without penalty. Suitable only for cash you genuinely don’t need for the term. Most Ltds want a mix.
The “tax savings” account approach
Open a dedicated savings account for tax money. On every customer payment, transfer the VAT portion (if registered) and a sensible Corporation Tax accrual (typically 19–25% of net profit) the day the cash lands. When the bills come due, the money is sitting there. As a bonus, it earns interest while it waits. The discipline is the point; the interest is gravy.
Tax on business savings interest
Interest earned on a business savings account is taxable income for the company at Corporation Tax rates. Banks deduct nothing at source – you account for the gross interest as income on the P&L. For most small Ltds, the tax on interest is negligible compared to the discipline benefit. £30,000 at 4% earns £1,200 interest, attracting roughly £228 of Corporation Tax at 19%. Still better than 0% in a current account.
How much to keep liquid vs save
Liquid (current account): 1–2 months operating expenses. Easy-access savings: 1–3 months buffer plus tax accruals. Notice or fixed-term: any cash you genuinely don’t need for 30+ days. Don’t lock everything into fixed terms – surprise expenses do happen, and the early-withdrawal penalty usually wipes out months of interest.
Common mistakes
All cash in current account earning zero. VAT money mixed with operating money so it gets accidentally spent. Locking too much in fixed-term and being illiquid for VAT day. Holding over £85,000 with one institution (FSCS exposure). Not switching when interest rates climb – rates change quickly; your account often doesn’t follow without an active switch.
How to open one
Most banks offer business savings accounts to existing business current account holders, often opened via a few clicks in online banking. Some require a separate application with company documentation (Articles, certificate of incorporation, ID for directors). Online-only providers like Starling, Tide, Allica Bank, Aldermore and Cynergy are often quicker to onboard. Switching is easy if the business is your own; group structures with multiple signatories take longer.
Frequently asked questions
The questions UK Ltd directors ask most often about business savings accounts.
Do I really need a separate savings account if I just leave money in my current account?
Three reasons yes: (a) interest — current accounts typically earn 0%, savings accounts 3-5%, (b) discipline — separating 'cash to spend' from 'cash to save' stops you accidentally spending tax money, (c) clarity — your accountant can see at a glance whether you've set aside what you owe. The interest alone usually justifies a 30-minute account opening.
Can I open a business savings account at a different bank from my current account?
Yes, and often you should — different banks offer different rates, and spreading across institutions extends FSCS protection. Some banks require you to be an existing customer; many don't.
What's a sensible interest rate to expect?
2026 UK rates: easy access typically 3.0-4.5%, 60-90 day notice 3.5-5.0%, 1-year fixed 4.0-5.0%. Rates have risen with the Bank of England base rate; stay alert for changes. Compare on Moneyfacts or Savings Champion.
Are e-money 'savings' accounts (Tide, Revolut Business, etc.) FSCS-protected?
Some are. E-money institutions are required to safeguard customer funds but do NOT have FSCS protection. Some now offer FSCS-protected accounts via partner banks — read the fine print. For meaningful balances, FSCS-protected accounts are worth the extra step.
How much should I set aside for Corporation Tax each month?
For a steady-margin business: roughly 19-25% of net profit (the marginal CT rate range). A simple rule: each month, calculate what your Corporation Tax would be if you stopped trading today, and ensure the savings account has at least that much.
Can I use my business savings account to hold a director's loan repayment fund?
Yes — separating 'money for the business' from 'money owed to the director' in different accounts is sensible bookkeeping. As long as the director's loan account in your books reflects the same balance, no problem.
Are interest payments on a business savings account taxable?
Yes. Interest is income to the company and taxed at Corporation Tax rates. Banks don't deduct anything — you account for it gross. For a £30,000 balance earning 4%, that's £1,200 interest, attracting roughly £228 Corporation Tax (at 19%). Negligible compared to the cost of leaving the money in a 0% current account.
Can I move money easily between current and savings accounts?
Yes, with most providers — instant transfers between accounts you own, often within the same online banking session. The exception: notice and fixed-term accounts have access restrictions by design. For tax savings money, keep it in easy-access or short-notice accounts so you can move it when bills are due.
