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 free 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.

Check Out: Banks Offering Free Checking With No Minimum Balance

Banks With No Minimum Balance Required

Not all financial institutions require minimum balances; some still offer a free, no-minimum-balance checking account — that is, a free savings account with no minimum balance requirement. Because these minimum-free accounts can be harder to find, however, it’s good to know there are other places where you can bank without having to worry about maintaining a required balance.

An online bank, for example, often falls into the category of banks with no minimum balance required. Online banks have almost no overhead because they don’t operate brick-and-mortar branches and can reduce or eliminate checking account minimum balance requirements. Because credit unions are nonprofits — they are owned and run by their members — they use their earnings to reward their members with better rates, eliminate maintenance fees and offer no minimum deposit requirements.

How to Avoid Minimum Balance Requirements

Sometimes banks require you to maintain a minimum balance, but you might be able to circumvent that stipulation. Here are a few ways you can avoid a minimum balance requirement:

• Bank online. One way to avoid a minimum balance requirement is to bank online; this might be a good option for you if you’re comfortable with technology and don’t mind banking on the internet. Another effective way to sidestep minimum balance requirements is to sign up for direct deposit with your bank.
• Set up direct deposit. If you have your paychecks deposited directly into your account, your bank likely won’t require you to maintain a minimum balance.
• Use a credit union. Explore your local credit union options to see if you can open an account with no minimum balance.
• Opt for a student account. If you qualify for a student checking account, get one — these accounts typically do not have minimum balance requirements. Student accounts generally offer other perks, too, like no monthly maintenance fee, free online and mobile banking and more.
• Find a bank with no minimum deposit requirement. As noted, there are banks without minimum balance requirements. Do your homework and find the one that works for you.

Related: Best Free Student Checking Accounts

Make the Switch

You probably have enough to worry about financially than constantly having to check your bank balance to make sure you’re not being charged for going below the minimum. If you’re tired of banking at a place that requires a specific balance, research your options and switch to a financial institution that doesn’t have such a requirement, or take one of the aforementioned tips.

Up Next: 5 Best Banks for No Fees