What Is A Minimum Balance?

What Is A Minimum Balance

In banking, do you know what is a minimum balance? Is it similar to the term minimum opening deposit? If not, then what does it mean? Do not worry if you can’t find the right answers to these questions. When I was new to banking, the same kind of questions came into my mind. Today, I will define minimum balance in simple words. Here, I have even included different types of minimum balance. Some useful tips are also mentioned that will help you to maintain a minimum balance in your bank accounts. Let us now understand what is a minimum balance more in detail.

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What Is A Minimum Balance?

A minimum balance is an amount that a customer needs to maintain in his bank account. It is a medium through which individuals can receive benefits from banks such as receiving interest. However, not all banks ask their customers to maintain a minimum balance for a savings account. It allows the bank to earn profits in the form of penalties if balances are not maintained.

Different Types Of Minimum Balance

There are three major types of minimum balances.

  • Minimum Daily Balance

Minimum daily balance is an amount maintained in an account to avoid any fees or earn interest.

  • Minimum Combined Balance

The minimum combined balance is an amount maintained by the individual for each month in an account.

  • Average Minimum Balance

The average minimum balance is an amount in a bank account at the end of each day during a statement period. This amount is divided by the number of days during the statement period.

Minimum Balance Vs Minimum Deposit

Many among us get confused between minimum balance and minimum deposit. You can check out the table below to clear out this confusion.

Minimum BalanceMinimum Deposit
Minimum balance definition: It is an amount that a customer needs to maintain in his bank account.Minimum deposit definition: It is an amount that a bank asks its customer to deposit at the time of account opening.
They are of three types: minimum daily balance, average minimum balance, and minimum combined balance.They are of two types: minimum opening deposit and minimum monthly deposit.

Penalty For Not Maintaining A Minimum Balance

The penalty or charges imposed on individuals for not maintaining a minimum balance vary from bank to bank. But according to my research, public sector banks charge less amount compared to private sector banks. It also depends on the type of account you have in the bank. The more you keep your account unattended, the more you will be charged with the penalty fee.

Tips To Maintain A Minimum Balance

Sometimes, we humans fail to maintain a minimum balance. In severe cases, you can face consequences if you don’t take immediate action. Below, I have given some tips that can be useful for you in full filling basic minimum balance requirements.

  • Do research on requirements of minimum balance of different financial institutions.
  • Open an account that doesn’t come with minimum balance requirements.
  • Avoid opening multiple accounts.
  • Try to deposit your paychecks into your account.
  • Students open up a student bank account as this account doesn’t qualify for minimum balance requirements.

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FAQ

What Is A Minimum Balance Charge?

A minimum balance charge is a penalty fee that is imposed by the bank on their customers. These fees are only charged when the customer fails to maintain a minimum balance in their bank account.

What Is The Minimum Balance For A Checking Account?

A minimum balance for a checking account is the money one has to maintain in their bank account to avoid any monthly penalty fees.

What Does No Minimum Balance Mean?

No minimum balance means no particular amount is required to maintain a bank account when it is empty.

Why Would A Bank Require A Minimum Balance?

A bank requires a minimum balance for the following reasons.

  • It allows banks to have more deposits.
  • It helps them to maintain their regulatory financial ratio requirements.
  • They can earn profits in the form of fees if minimum balances are not maintained.

Conclusion

Now, you have gained enough knowledge about what is a minimum balance and its types. A minimum balance is an amount that a customer needs to maintain in his bank account. It’s a medium through which individuals can receive benefits from banks such as receiving interest. The bank charges you with penalties when you fail to maintain the minimum balance in your account. In this way, the banks earn profits in the form of fees. The more you keep your account unattended, the more you will be charged with the penalty fee. Thus, knowing what is a minimum balance, you can keep yourself in such situations.