As accountants, we get asked about this topic a lot – and there are some key things to consider. The recent events (July 2023) of Nigel Farage being closed by Coutts and Reverend Richard Fothergill being closed by Yorkshire Building Society have highlighted this issue even more!
Personally, I have had one international bank close me down on what I suspect was suspicions of money laundering… which if you are buying 2 unmortgageable houses a month that need full refurbishments is probably a natural conclusion.
But first, let’s look at the 3 main options:
1 – High street banks
Where you need to deposit cash, you will have to go with one of these. I have banked with most of the high street banks and I have the same dire opinion about them all! Basically pick who you would like to get a headache from!
2 – Online challenger banks
When they first appeared, I was not that impressed. However, like all new businesses, they had lessons to learn and feedback to take on board. They have generally done this well and for a quick, efficient and (sometimes!) cost effective solution, they may be a great alternative to the traditional banks.
They services will continue to evolve over time making this blog a little out of date – but you hopefully get the picture.
In my experience with 3 of them, I had my card in my hand within c. 3 days of my account being approved – all from the comfort of my couch!
3 – Online challenger THINGS
I call then “things” as I am not sure what to call them. Even though they look and smell like a bank – they are NOT A bank. They are not a member of the FSCS and for this reason I would avoid them like the plague! But be careful, they are fairly clever in hiding this information from the public.
So, what is the FSCS?
All banks are a member of the Financial Services Compensation Scheme. This protects consumers of the bank should the bank fail.
The first £85k (or £170k for joint accounts) of savings is protected should the bank fail for whatever reason.
If you are looking at online banks look at the FAQ and see whether they are FSCS registered. If the answer isn’t a clear, simple YES, then you’re on the website of a “THING”!
What else should I consider?
Well, let me ask you if you have ever heard of a bank called Northern Rock? Or how about Bank of Iceland? I had all my savings with the Bank of Iceland once upon a time!
What you don’t want to do is have all your personal affairs with Bank A and all your business affairs with Bank A. If they do a Northern Rock or Bank of Iceland on you – you could be well and truly pickled. Farage and Revered Fothergill are now both in this boat – trying to paddle with their oars taken away.
I believe in some healthy diversification – whoever you bank with personally, it might be prudent to not bank with them from a business perspective!
BEWARE:
You might bank personally with Bank A and use Bank B for business and think you are okay.
But you might not be!
You will need to do a little bit of research as the FSCS compensation is per group – not per bank! So even though they may appear to be two separate banks, behind the scenes they are the same group.
Nice and simple huh?!?!
Other things to consider – #1: You want to be able to download your bank statements in ideally a CSV format (similar to Excel) at year end. There are some HSBC bank accounts that couldn’t do this historically and can only produce PDF bank statements – which causes problems with data sorting and scrutiny. For most banks and bank accounts, this is not an issue.
Other things to consider – #2:
We use Xero as our preferred accounts package so ensuring the bank account is able to talk to Xero (or whatever software you intend to use) is important. Even if you are small and just starting out, it is worth planning ahead for when your portfolio is big enough that you will need proper accounting software to manage it.
But wait… there’s more….!
While many banks can talk to Xero, the format they provide the information in is also relevant. Some banks will have dates and codes and all sorts of things mixed up with the actual description of reference making use of the software harder. Metro is one such offender. Other banks provide a nice crisp, clean reference that is easy to use – and very useful as your portfolio grows and there are more moving parts.
Other things to consider – #3:
As part of the EU open banking changes, clients now need to refresh and reapprove their bank feed to their accounting software every 90 days. Keeping track of that is not great – and you’ll often only know you have to do it when the import stops. They are looking to change this in future which will be ideal.
Starling is the first bank to send its customers an email to remind them to reactivate the feed – I’m sure others will follow in time. This is a real plus!
More than 1 director
Some online banks are geared towards only 1 director – which if there are 2 of you or it is a joint venture, would not be adequate.
If it is a JV or family entity with 2 or more of you, ensure the bank account can have multiple directors.
Non residents
Most banks don’t mind a non-resident shareholder as long as there is at least one UK based director. It is almost impossible to open a company bank account.
In conclusion:
There are lots of things to consider when you really think about it.
Things also change at a fairly rapid pace – so this may be out of date by the time you read it. Monzo for example is bringing out a business bank account and they were great for a personal bank account.
We used to recommend Metro bank as they were easier to open an account with – until they had their financial troubles… They still are loss making which is not ideal. They also changed the quality of information provide to Xero which was not ideal. As a result, we don’t recommend any one bank anymore – it is a business decision you need to make.
Craig Hopkins – Founder
Property Accounts