How Do Minimum Balance Requirements Work?

How do minimum balance requirements work? Our personal banking expert explains how minumum balance requirements work as they relate to bank accounts. Bank customers who have minimum account balance requirements...

Bank customers who have minimum account balance requirements on their accounts should be aware of what benefits this type of account offers and what will happen if their balance dips below the minimum.

"If you go below the minimum balance you pay a service fee, cost varies depending on the type of account," states Steve Twirago, personal banker with Chase Bank.

The bank makes money by investing your money. You will profit from this via interest rates on your account and by the use of their services.

"A minimum balance requirement is like a promise to your bank that a certain amount of money will always be in your account," says Twirago, "and if a customer falls below that minimum, they will pay a service fee".

If your checking account has a minimum balance requirement of $250.00, your bank expects your balance to never dip below that amount. You may be required to open your account with that amount or more and to maintain that balance. There are exceptions though.

"Sometimes you're given a certain time to get to that minimum when you open a new account," explains Twirago.

In return you may be offered an interest rate on your money and your service charges may be waived.

The amount you will be charged for going under your required minimum balance will vary with each bank. You will be told what those service charges will be when you open your account.

This service charge will be taken from your account, which will require you to replace that amount as well as the amount you went under your balance minimum in order to get your account in good standing again.

"If your minimum balance requirement is zero, and you fall below it, the service fee is deducted from the account and you need to pay to get the account back above zero," says Twirago. "Also, when you go below zero, you pay an additional fee for going into overdraft. However, there are a few options on how a checking account can be linked for overdraft to protect a customer from going below zero."

Generally speaking the amount of your minimum account balance will decide the amount of interest you can earn on your money. If your account minimum is a low number you may get a very low interest rate. On the flip side, you will earn a better interest rate if you have a higher minimum requirement.

If you have a low minimum but find that you have double that remaining in your account each month ask for a higher minimum balance and a higher interest rate. This works out well for you and your bank.

If you find you are having trouble keep your minimum balance each month you should switch account types. The service charges for an account with no minimum balance requirements may cost you less money in the long run.

Also keep in mind that if you fall below your minimum balance, you may not only be subject to a service charge but it will also affect your interest earnings. Balance requirements are monitored on a daily basis so each day you are under your minimum you will be penalized.

"In summary, you may pay a service fee for going below minimum balance, going into overdraft and each day that you remain below zero," explains Twirago.

These penalties are solely up to the bank and should be included in the information you receive when opening your account. The amount of time you have to get your account into good standing before being penalized again will vary with each bank.

The penalties will also greatly depend on the type of account you have.

"Money market accounts will have higher minimum requirements and penalties than savings or checking accounts but they will also yield a higher interest rate for you," says Twirago.

Take a little time to talk with your bank representative to find out which account requirements will work best for you. The better you understand how they work, the better you can decide the account that is right for you.

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