Minimum Deposit: What it is, How it Works, Example

What Is a Minimum Deposit?

A minimum deposit or initial deposit is the minimum amount of money required to open an account with a financial institution, such as a bank or brokerage firm.

Higher minimum deposits are generally associated with accounts offering premium services, whereas products oriented toward a mainstream audience generally offer lower minimum deposits to attract new customers.

Key Takeaways

• Minimum deposits are the amount of money which must be contributed upon the set-up of a particular account.
• Higher minimum deposit requirements are generally associated with premium services.
• In recent years, increased competition has led to a decline in minimum deposit requirements among some financial service providers.

How Minimum Deposits Work

In the United States, minimum deposits can vary widely. Some services offer no minimum deposit requirement, while others set their minimum at $10,000 or more.

From the service provider’s perspective, minimum deposits help ensure that the revenues generated from the customer will be sufficient to cover the administrative costs and overheads associated with servicing that account.

Higher minimum deposit requirements are generally associated with premium products, while mass-market offerings will reduce or even waive their minimum deposit requirements. For example, a full-service brokerage might require a minimum deposit of at least $10,000 in exchange for added features like reduced trade commissions, analyst reports, or complete and timely data from the exchanges. In contrast, a discount brokerage might waive minimum deposit requirements but offer a more pared-down service with fewer advanced features.

Today, competition among financial service firms has led to reduced fees and minimum deposit requirements in some sectors. This is particularly visible in the discount brokerage and investment management industries, where firms like Wealthsimple and Betterment offer low-cost platforms that, in some cases, have no minimum deposit requirements. The low-cost approach has also extended to other fee areas, such as by eliminating per-trade commissions.

In addition to minimum deposit requirements, financial firms can compete to attract customers through areas like annual account fees, asset management fees, and fees associated with withdrawing or transferring funds.

Real-World Example of a Minimum Deposit

To illustrate, consider the pricing options offered by Wealthsimple and Betterment. For customers wanting the cheapest option, both firms offer account options with no minimum deposit requirements. However, customers wishing to access more advanced features can do so with higher minimum deposits.

Wealthsimple, for example, offers an account for minimum deposits of $100,000 and above, which provides reduced annual fees and oversight from a financial adviser. Another plan, for deposits of $500,000 or more, offers additional benefits like a discounted health plan.

Betterment has a slightly different model. Their premium plan, for deposits of $100,000 and above, carries a higher management fee. In exchange, the premium plan offers access to a team of financial planning professionals who can advise the customer on topics like retirement and estate planning.

Betterment has a slightly different model. Their premium plan, for deposits of $100,000 and above, carries a higher management fee. In exchange, the premium plan offers access to a team of financial planning professionals who can advise the customer on topics like retirement and estate planning.