Personal vs. Business Bank Accounts: The Difference?

A personal bank account is designed for your everyday finances, while a business account is designed for money connected to a business.

Both can let you deposit money, make payments and send transfers. The main difference is how the account is structured and what types of transactions it is intended to handle.

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What Is a Personal Bank Account?

A personal bank account is meant to manage your individual finances.

You might use one for:

• Receiving your paycheque
• Paying rent or a mortgage
• Buying groceries
• Paying bills
• Sending e-Transfers
• Saving money
• Making everyday purchases

Personal accounts can include chequing accounts, savings accounts or a combination of both.

They are generally intended for personal rather than commercial activity.

What Is a Business Bank Account?

A business bank account is designed to manage money connected to a business.

You might use one to:

• Receive customer payments
• Pay suppliers
• Pay business expenses
• Collect revenue
• Pay contractors or employees
• Make tax payments
• Receive business deposits

Keeping these transactions together can make it much easier to understand how much your business earns and spends.

What Is the Main Difference Between Personal and Business Bank Accounts?

The biggest difference is their purpose.

A personal account manages your own money.

A business account manages money belonging to or generated by a business.

Business accounts may also include features specifically designed for commercial activity, such as:

• Multiple authorized users
• Higher transaction limits
• Business cheques
• Payroll services
• Merchant payment services
• Accounting integrations
• Business credit products

The features available depend on the financial institution and account.

Do You Need a Business Bank Account in Canada?

It depends on how your business is structured.

Sole proprietorship

A sole proprietorship is not legally separate from its owner. The business income is generally reported as part of the owner's personal income.

That does not mean using one account for everything is always a good idea.

Keeping a separate account for business transactions can make bookkeeping and tax preparation much easier.

There is also an important exception. If your business operates under a registered name other than your own, the CRA says you will need a separate bank account to process cheques payable to that business name.

Corporation

A corporation is a separate legal entity from its owners. It can own property, enter contracts and conduct business in its own name.

Because the corporation is legally separate, its finances should also be kept separate from the shareholder's personal money.

Mixing corporate and personal transactions can create accounting, tax and record-keeping problems.

Can You Use a Personal Bank Account for Business?

You may be able to in some situations, particularly when operating a small sole proprietorship under your own name.

However, your financial institution may place restrictions on using a personal account for commercial activity.

Check your account agreement before using a personal account for ongoing business transactions.

Even when it is allowed, separating your finances usually makes business management easier.

Why Should You Separate Personal and Business Finances?

Keeping separate accounts creates a clear record of what belongs to the business.

This can help with several areas.

Easier bookkeeping

You do not need to sort through grocery purchases, rent payments and personal subscriptions while reviewing your business expenses.

Most transactions in the business account should relate directly to the business.

Easier tax preparation

Businesses need records showing income and expenses.

A dedicated account can make it easier to identify:

• Revenue
• Business purchases
• Contractor payments
• Software expenses
• Advertising costs
• Professional fees
• Other deductible expenses

You should still keep receipts and appropriate records. A bank statement by itself does not necessarily prove that an expense was business-related.

Clearer cash flow

Separate accounts make it easier to see how much money the business actually has.

You can quickly review:

• Revenue coming in
• Expenses going out
• Available cash
• Upcoming payments

This is much harder when business and personal transactions are mixed together.

More professional payments

A business account can allow payments and cheques to appear under your business name rather than your personal name.

This may be useful when dealing with customers, suppliers and contractors.

Are Business Bank Accounts More Expensive?

They can be.

Business accounts often have different pricing structures from personal accounts.

Possible costs include:

• Monthly account fees
• Transaction fees
• Cash deposit fees
• e-Transfer fees
• Cheque fees
• Additional user fees

Some business accounts have no monthly fee or waive fees when certain conditions are met.

Compare the account based on how your business actually receives and spends money.

A business that processes hundreds of transactions per month has different needs from a freelancer who receives two or three payments.

Can You Have Both a Personal and Business Bank Account?

Yes.

In fact, having both can make managing your money much simpler.

For example, you could:

1. Receive business revenue into your business account.
2. Pay business expenses from that account.
3. Keep money aside for taxes.
4. Transfer your personal pay into your personal account.
5. Use your personal account for household and everyday expenses.

This creates a clear boundary between business money and personal money.

How Do You Pay Yourself From a Business Account?

The process depends on your business structure.

A sole proprietor and the business are not separate legal entities. Money can generally be transferred from the business to the owner's personal account as an owner's withdrawal.

Corporations work differently.

A corporation is a separate legal entity. Owners may pay themselves through salary, dividends or other properly recorded transactions.

The tax treatment can be different, so incorporated business owners may want professional accounting advice.

Do Business Bank Accounts Affect Your Personal Credit?

Opening a business bank account itself does not necessarily affect your personal credit score.

However, business credit products can be different.

A financial institution may check your personal credit when you apply for:

• A business credit card
• A business loan
• A line of credit
• Overdraft protection

Some business borrowing may also require a personal guarantee.

Always check the terms before applying.

Do You Need a Business Number to Open a Business Bank Account?

Requirements vary depending on the account and your business structure.

Not every unincorporated business automatically needs a Business Number.

The CRA says an unincorporated business generally needs a Business Number when it registers for CRA program accounts such as GST/HST or payroll. Corporations require a Business Number.

A financial institution may still request other documents when opening a business account.

These could include:

• Government-issued identification
• Business registration documents
• Articles of incorporation
• Partnership documents
• Business Number
• Business address
• Ownership information

Check the institution's requirements before applying.

Personal vs. Business Bank Account: Which Should You Use?

Use a personal account for your personal finances.

Use a business account for business-related income and expenses when your business structure or financial needs call for one.

A separate business account becomes particularly useful when:

• Your business has regular revenue
• You have significant business expenses
• You operate under a business name
• You employ people
• You collect GST/HST
• You are incorporated
• You want cleaner bookkeeping

Even a small business can benefit from separating business and personal transactions.

The simplest approach is to keep personal money in your personal account and business activity in a separate account.

This makes your finances easier to track and reduces confusion when it is time to prepare your taxes.