Learn something new every day
More Info... by email
A minimum balance is the amount of money, usually specified exactly, which an account holder must maintain in order to be eligible for certain privileges. These privileges and the exact balance are specified by the institution with which a customer banks, and they may differ by bank or by type of account. Generally banks or savings and loans require a minimum balance when an account is first opened, and accord other benefits of maintaining a certain balance during the life of the account.
One common reason banks may have a minimum balance is to determine the types of monthly fees that customers pay. If a customer has a significant amount in the bank at all times he might be entitled to a free checking account, for example, where he pays no monthly fees. Should the balance fall below the minimum, which is pretty common with checking accounts, the customer could then pay a monthly fee. A lot of banks have eschewed this policy in favor of providing free checking accounts to those who have direct deposit to their accounts.
Another way that minimum balance can apply is when determining if the account will earn interest. Interest checking accounts are usually those where a small amount of interest accrues on accounts that maintain a certain balance. If this balance is not reached, than the account is treated as a non-interest earning account or a regular checking account. The customer might pay a monthly fee for its maintenance and wouldn’t earn any interest.
There may be accounts where much higher minimums maintained, in the several thousands, could result in other privileges. These could include a higher interest return, access to special programs and financial institution offers, or ability to take advantage of special services like quick loan processing or financial counseling. Usually the more money a customer decides to keep in a bank, the more valued the bank finds the customer, and the more they’ll offer in perks.
Since account levels can fluctuate per month, minimum balance is usually an average or mean of each daily balance for a particular month. Dropping below the balance for a couple of days doesn’t necessarily mean that a customer isn’t entitled to all services they normally get if the balance never goes below minimum. It simply means that the average or mean of all days for the billing cycle must be at or above the minimum balance. Though calculation of this sort tends to be standard, it’s wise to read the fine print to make certain this is how balance is determined at a particular institution.
Minimum balance shouldn’t be confused with minimum payment. The latter is the lowest possible amount people can pay on a debt, and is often associated with credit card payments. While keeping a balance at a bank is thought desirable, making only minimum payments on a credit card is not because it allows more interest to accrue and adds to total debt.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!