December 07, 2010

Maintain a Minimum Balance to Avoid Banking Fees

Avoid Bank Service Charges

For some of us, it may be interesting to maintain the minimum balance required to eliminate our monthly banking fees. Although it is not usually advisable to let money sleep in a bank account, this time around it could be beneficial to you.

A Great Investment

Indeed, maintaining a minimum balance can even be considered as an excellent investment depending on your situation.


If you’re required to maintain a $1000 minimum balance and that you can save $9.95 on monthly service charges,we can calculate that it represents a 12% annual performance, without taking any risk.

Furthermore, considering taxes, assuming a marginal rate of 40%, fees saved equate to a 16.8% interest yield [12% x (1+40%)].

You know a lot of Risk-Free Investments that generate a16.8% return? I certainly don’t!

A Portion of Your Emergency Fund

If you are disciplined enough, this can even be a good idea for a portion of your emergency fund. You leave the first $1000 of your emergency fund in your checking account and use for the rest of your emergency fund, an account that generates a bit more interest, like ING direct savings account. Then you should "forget" that this $1000 even exists and never use it. This strategy requires excellent discipline and may not be advisable for everyone.

Also, make sure that maintaining the minimum balance will save you all banking charges. Indeed, with some banking packages, maintaining the minimum balance will only save you the basic fee which allows you to perform a limited number of transactions each month. You will thus pay additional fees if you exceed the allowed number of transactions. A package that offers unlimited transactions would probably be more interesting if you decide to implement this strategy.

So make your calculations and remember that there are also other ways to avoid or minimize your monthly banking fees.

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