What are Sub-Accounts? And Why Individual Checking Accounts Are Better

By Ziwei Chen

Partner Marketing Manager, Relay

Just like how dividing a book into chapters makes it more easily digestible, dividing your money into sub-accounts can give you greater clarity into spending habits and help you hit your financial goals.

When you bank with only one business checking account, all your money is in one bucket. 🪣 You have a long list of transactions but no real insight into where the money is going until you dig into each transaction line by line. All of this can be confusing. 😵‍💫 But the good news is — sub-accounts can help keep you on budget and help with account management.

If you haven’t heard of Relay before, we’re an online business bank that offers up to 20 free checking accounts — so you can organize your money however you like. In this article, we cover what a sub-account is, how they differ from individual checking accounts, and why you should use them. 


What is a sub-account?

Like the name suggests, a sub-account is a bank account that exists within another bank account. If you imagine your business bank as a filing cabinet 🗄, the first drawer is your main business checking account and each folder within that drawer would be a sub-account.

Sub-accounts give you greater clarity into cash flow because they help compartmentalize your money. 

Picture it: if you only have one main operating account you’re probably used to signing in and seeing a long list of transactions. Has your client settled an invoice with you? Have bills already been paid? How much do you have earmarked for bills? It’s unclear at first glance. You need to dig into the expenditures to answer these questions. 

Now, if you had sub-accounts to compartmentalize your money, you immediately get more clarity. For example, if you have an income account and an expense account, the income account will show you how much money your business is earning and the expense account will show you how much money your business is spending. Already, you get a much clearer view of where every dollar is allocated and spent. 🤯

When picking a business bank, it’s essential to choose one that offers the functionality of creating new sub-accounts so your business can implement frameworks like the digital envelope system ✉️ or multiple bank account budgeting 📁. 

Which banks offer sub-accounts?

Many neobanks and online financial institutions offer multiple sub-checking accounts for free, so it's important to ask about this option when choosing a business bank account. With Relay, you can open up to 20 individual checking accounts, which can act like sub-accounts (more on this later). 

Sub-accounts can exist within checking accounts and savings accounts, so depending on your financial goals, you’ll want to take account types into consideration before making your decision.

Advantages of sub-accounts 🙆🏻‍♀️

Sub-accounts are a great way for small business owners to separate funds for different expenses, so you can better organize, budget and see how money is flowing in and out of your business. 

Here are some advantages of using sub-accounts: 

  • You can visually separate your money by category and get better visibility into your finances

  • Clearly see how each dollar is being allocated in your business

  • Easily move funds between accounts within one banking dashboard

  • Speed up bookkeeping since you already have expense categories set up within your business bank 

  • Earmark for taxes right from the start by setting up a dedicated tax sub-account

How to organize finances with sub-accounts

Sub-accounts can be used in a variety of ways depending on the specific purpose and needs of your business. The possibilities are really endless, but here are three different scenarios and use cases that are possible. 

Scenario 1: Sub-accounts by expense category 

Arguably, the most common setup for sub-accounts is by expense type. In order words, you categorize your business expenses into different categories and create a sub-account for each one. Here’s how a typical small business could set up its accounts: 

  • 💵 Primary account 

    • 🛠 Operating expense account (for rent, operating expenses, etc.)

    • 📁 Payroll account

    • 📈 Savings account 

    • 💲Tax account 

    • ✈️ Travel expense account 

    • ⚠️ Emergency funds

In this scenario, all your money flows through your primary checking account and into your dedicated sub-accounts at the end of the month. Instead of having one account with a long list of financial transactions, you now have 6 different accounts to gauge your business spending habits. This way, you can see exactly how much money you can move into savings each month and how much money you have left over to allocate to travel expenses or emergencies. 

Scenario 2: Sub-accounts by department or product vertical 

Depending on your business, sometimes it makes sense to organize your sub-accounts by department instead of by expense type. This scenario may work for an e-commerce company with different online storefronts or product verticals. Using an online clothing store as an example, here’s a possible way you can organize your sub-accounts: 

  • 💵 Primary account 

    • 👗 Women's clothing account 

    • 👔 Men's clothing account 

    • 👟 Shoes and accessories account 

In this example, revenue from each store would flow into the primary account, then filter through to the corresponding sub-account so that each department has better control over its profits and losses. If you want to determine the most profitable department, and how much money you have to re-invest into each department, this setup is a good choice.

💡 Want to level up your e-commerce cash flow management? Learn how to apply profit-first to e-commerce >

Scenario 3: Sub-accounts by property (for real estate investors)

If you’re a real estate investor, sub-accounts can be a game-changer in helping you manage profitability within your investment portfolio. If you own a number of short-term rentals, you can organize your sub-accounts by property. Here’s a potential way to set it up: 

  • 💵 Primary account 

    • 🏠 Property #1 

    • 🏠 Property #2

    • 🏠 Property #3 

    • 🏠 Property #4

    • 🏠 Property #5  

Organizing your multiple checking accounts in this way can help you determine which rental property is the biggest cash cow. Which in turn, gives you insight when you’re ready to grow your portfolio. 

💡 Ever feel like you're selling yourself short? Profit First is an accounting method that secures your profits before expenses. Read how to get started with Profit First for real estate investing >

Sub-accounts vs individual checking accounts

After seeing the different ways you can use sub-accounts, you may be wondering: why use sub-accounts when I can just open individual checking accounts? 🤔

The simple answer is: you absolutely can. ✅ In fact, we recommend individual checking accounts because not all sub-accounts are created equal. 

Yes, sub-accounts can help you organize your money into different compartments, but depending on the bank, not all sub-accounts have individual account numbers

Why do account numbers matter? Well, account numbers are a unique string of characters that help identify your bank account from others. When you send money to a payee, it’s the account number that helps a financial institution figure out where you’re trying to send the money. In other words, account numbers are like mailing addresses 📬, and without them, you can’t send money. 

While sub-accounts can help you organize your money, if they don’t have individual account numbers, you can’t send or receive money from one sub-account to another without first sending it back to the parent account. 🙅🏻‍♀️ This adds an extra step which can be tedious for a lot of businesses. 

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If you want greater clarity into your cash flow, including the ability to automate cash and percentage-based transfers between accounts, unique account numbers are a must.

At Relay, instead of offering sub-accounts, you can open up to 20 free checking accounts with individual account numbers. Although they aren’t technically sub-accounts, you can use them just like sub-accounts and organize your money however you like. 

Plus, with Relay’s checking accounts, you can issue debit cards 💳 and connect them to a specific checking account in order to better manage how you spend your money. 

Use multiple checking accounts with Relay

Multiple checking accounts 📁 are powerful tools that can help you keep your money organized. After you calculate your budget, figure out how many business checking accounts you need, then find a bank that can support multiple accounts.

Use an online bank like Relay to create up to 20 checking accounts to easily separate and organize cash. You don't have to worry about account fees or minimum balances, and Relay integrates directly with accounting and payroll software.

Create your multiple checking accounts and get your finances organized with Relay today.