Why do some accounts come with minimum balance requirements? Our personal banking expert explains minimum balance requirements. When you go to a bank you may be overwhelmed by the variety of accounts available...
When you go to a bank you may be overwhelmed by the variety of accounts available to you. There are free accounts, accounts with service fees and some that waive fees if you have a minimum balance. Accounts with a minimum balance may qualify to earn interest. The rate varies depending on the size of your account.
Which accounts have minimum balance requirements?
"Certain checking accounts, for example," says Steve Twirago, personal banker with Chase Bank, "some banks will waive the minimum balance requirement based on your overall relationship with the bank. The bank rewards customers for larger balances and the bank makes money. Everybody wins."
The bank may use your savings to invest.
"The bank uses your money to loan out to others. Usually, the bank will make money on it since the interest that a customer pays on a loan is higher than interest a customer receives on an interest bearing account," explains Twirago.
In some cases the bank will lose money on a loan due to a delinquent loan customer. You don't have to worry about losing your money however. In the rare case a bank goes out of business, your account is insured up to $100,000 by the FDIC.
If you have a great standing relationship with your bank they may, on occasion, waive your minimum balance requirement. This will differ with each bank. Your minimums may also be waived due to the type or use of your account.
If you pay your bills online you may also find that your bank will be happy to waive your minimum requirements (this varies by bank). However, if your balance requirement is $500.00 your balance cannot go below this amount or you will be charged a fee.
If you have a checking account and you have direct deposit for your paycheck, the bank may waive your monthly service fee or your minimum balance requirements.
Twirago states, "Currently Chase offers $250.00 minimum checking for non-direct-deposit customers who want to pay their bills online."
Each bank will have different minimum balance requirements for each of their accounts. It is in your best interest to shop around for the account that is right for you.
A good bank will work with you and offer you the best deal for your situation as long as you have a good history with the bank. They will want to keep you as a customer even if it means waiving a few fees or balance requirements.
If you are a new customer to your bank they may not waive your balance requirements right away but if you remain in good standing they may do so for you in the future.
A minimum balance requirement account is beneficial for both you and your bank.
"A minimum balance requirement is beneficial to the bank since they are passionate about deposits. Chase bank however, rewards customers with a no minimum balance requirement if they have a certain relationship with the bank or if they have direct deposit," says Twirago. "As a result, it's usually labeled as free checking."
Understanding how these accounts work is in your best interest because your money can make money. Check in with the bank once a year to see if they are willing to sweeten the terms of your account.
