A minimum balance is the amount of money required to maintain an account to be eligible for certain privileges, such as free checking or interest-bearing accounts. The balance may vary by institution and account type, and higher balances can lead to more benefits. The minimum balance is usually an average of daily balances for a particular month and should not be confused with the minimum payment for credit card debt.
A minimum balance is the amount of money, usually exactly specified, that an account holder must maintain to be eligible for certain privileges. These privileges and the exact balance are specified by the institution with which a client deposits, and may differ by bank or by account type. In general, banks or savings and loans require a minimum balance when an account is first opened, and provide other benefits of maintaining a certain balance for the life of the account.
A common reason that 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. If the balance falls below the minimum, which is quite common with checking accounts, the customer could pay a monthly fee. Many banks have eschewed this policy in favor of providing free checking accounts to those who have direct deposit into their accounts.
Another way the minimum balance may be applied is when determining if the account will earn interest. Interest checking accounts are typically those in which a small amount of interest accrues in accounts that maintain a certain balance. If this balance is not reached, the account is treated as a non-interest bearing account or a regular checking account. The client could pay a monthly fee for its maintenance and would not earn any interest.
There may be accounts where much higher minimums are maintained, in the several thousand, which could give rise to other privileges. These could include higher interest yields, access to special programs and offers from financial institutions, or the ability to take advantage of special services like fast loan processing or financial advice. Typically, the more money a customer chooses to keep in a bank, the more valued the customer will be and the more they will offer in benefits.
Since account levels can fluctuate by month, the minimum balance is usually an average or mean of each daily balance for a particular month. Going below the balance for a couple of days does not necessarily mean that a customer is ineligible for all the services they normally receive if the balance never goes below the minimum. It simply means that the average or average of all days for the billing cycle must be equal to or greater than the minimum balance. Although calculation of this type tends to be standard, it is wise to read the fine print to ensure that this is how the balance is determined at a particular institution.
The minimum balance should not be confused with the minimum payment. The latter is the lowest possible amount that people can pay for a debt, and is often associated with credit card payments. While it is considered desirable to maintain a balance in a bank, making only minimum payments on a credit card is not because it allows more interest to accrue and adds to the total debt.
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