Minimum Balance: Definition, Requirements, and Margin Accounts

What Is a Minimum Balance?

For bank accounts, the minimum balance is the dollar amount that a customer must have to receive service benefits, such as keeping the account open or receiving interest.

For margin accounts, it is the deposit amount required before margin trading is allowed, and after a stock purchase, the minimum balance is the maintenance margin requirement.

Key Takeaways

• The minimum balance for a bank account is the dollar amount that must be maintained to receive benefits or keep the account open.
• In margin accounts, the minimum balance is the deposit amount required before trading and the maintenance margin required after trading.
• Minimum balances can be enforced by charging fees, denying interest payments, or closing the account if not maintained.
• Not all banks require minimum balances and there are ways to avoid one, such as using online services, setting up direct deposits, and opening a student account.
• The minimum balance for a margin account is at least $2,000, as required by FINRA.

Understanding a Minimum Balance

When someone opens a bank account, they must keep a minimum amount of cash in the account, known as the minimum balance.

Banks have different reasons for requiring a minimum balance. Some require it to open the account, while others require it for preferential treatment and added services. Banks enforce the minimum balance by charging fees, denying interest payments, or closing the account if it falls below the minimum balance.

The minimum balance is usually calculated as the actual dollar balance in the account, but it can also be an average balance over a certain period. Some accounts may have multiple minimum balances for different benefits. For example, one balance may be required to keep an account open, while a higher balance may be necessary for fee waivers or interest payments.

Banks have minimum balances to increase deposits, lend more money, meet regulatory requirements, profit from fees, and cover account operating costs.

Not all banks require minimum balances, and there are ways to avoid them, such as banking online, setting up direct deposits, and opening a student account.

Minimum Balances in Margin Accounts

Margin accounts with a brokerage firm are subject to minimum balances. FINRA requires a minimum deposit of at least $2,000 on a margin account.

After buying a stock on margin, the maintenance requirement specifies the minimum equity to be maintained in the account at all times. FINRA rules require this minimum balance of equity to be at least 25% of the total market value of the securities purchased on margin.

Brokerage firms can set the maintenance requirement higher than 25%, with some going as high as 40% depending on the type of securities purchased.

If there is a shortfall, the brokerage firm will issue a margin call, demanding additional cash or securities to satisfy the minimum balance of equity. Failing that, the firm will liquidate securities in the account until the minimum is met.

What Is an Example of a Minimum Balance?

An example of a minimum balance is the cash required in a bank account to receive a certain reward. For example, Bank ABC may charge a monthly fee of $10, but if you maintain a minimum balance of at least $200, it waives the fee.

Is It Fine to Pay the Minimum Balance on a Credit Card?

Paying only the minimum balance on a credit card keeps the card open, but it means not paying off the entire debt. This accrues interest on the unpaid amount, increasing the debt. It’s recommended to pay the entire statement balance, not just the minimum.

Do Banks Charge for Minimum Balances?

Some banks charge a fee for not maintaining the required minimum balance. Check with your bank and see if they offer no-fee bank accounts.

The Bottom Line

Bank accounts vary in their requirements. Not all accounts require a minimum balance, but those that do may offer additional benefits such as no fees and free checking.

Know the requirements when opening a bank account to avoid unnecessary costs. If you have a large balance, take advantage of the different accounts a bank offers to meet any minimum balance requirements and access additional benefits.