Why Banks Require a Minimum Balance

Many financial institutions require a minimum balance to open an account, earn a higher interest rate and avoid a service fee — or any combination of these things. In short, they need to be able to make more money from your deposits than you cost them to maintain your accounts. Learn how to avoid a minimum balance requirement and stop paying bank fees. 

Why Do Banks Require a Minimum Balance?

Financial institutions impose minimum balances because, simply put, customers cost them money. Your bank or credit union has to pay overhead to run branches, maintain accounts, deliver customer service and more. At the end of the day, a bank is still a business and businesses need to make money.

What Is a Minimum Balance?

A minimum balance is the least amount of money that you’ve had in your bank account during the whole month. Minimum balance fees can add up, so make sure you know what you’re getting into up front, and try to find a bank with fee checking and no minimum balance requirement. Several different types of minimum balance requirements exist, including:

• Minimum balance: When you are required to simply keep a minimum balance in your account, that means your account balance cannot drop below the specified amount at any time during your statement cycle, or you will be charged a fee.
• Minimum daily balance: Associated with checking accounts, a required minimum daily balance means that your balance can drop below the required amount at any time during the day as long as you meet the balance requirement at the end of the business day.
• Average monthly balance: Don’t confuse this term with average daily balance. To arrive at an average monthly balance, the bank records your account balance at the end of each business day. At the end of your statement cycle, the bank averages those balances — by adding them up and dividing that figure by the number of days in your statement cycle.