This is actually a question I’m posing to the readers.  I honestly do not know the answer.  There are a few in my office that used to work in the environment where questions like this were asked, but they didn’t have an answer either.  I’m going to tell you what I think, and I ask that you add to it if you know any better.

The obvious answer is also the least likely to be true.  Banks impose minimums so they can hit you with fees.  If your savings minimum on an upgraded account is $5,000, every time you dip below that they’ll ding you with a fee; we’ll say for $25.  The problem with this hypotheory is the bank minimums are old-school fees.  The old-school fees like minimums and not-sufficient funds (NSF) were in place because when that occurs the bank actually does lose money when it happens.  The new-school fees like ATM fees, document fees, maintenance fees (an account needs maintenance?) are of the type to nickel and dime the customer.

Like I said the old-school fees are in place to cover the bank’s butt when you’re sloppy and don’t follow the rules.  This tells me the bank has plans for that $5,000 minimum.  Trent Hamm over at The Simple Dollar explained that different types of deposit accounts are earmarked by the bank for different investments better than I ever can.  A good example is the deposits from a basic checking account can only be used to invest in short term treasury notes from the federal government.  On the opposite end money deposited in a 12 month CD might be used for a longer term investment like a line of credit to a business.

I think certain banks include the minimums so they can use the minimum balance for longer term investments, like a mortgage.  Let’s say I’m a bank with 1,000 savings account with $5,000 minimums.  1,000 X $5,000 = $5,000,000 that I can loan out for mortgages.  Any funds over $5,000 in the accounts I’ll use for short term investments like the before mentioned t-notes.

So when you draw down below that minimum I have less money to loan out for mortgages, which could get really bad if everyone was doing it and I had all the money loaned out.  So to keep you from drawing down I charge a fee if you do.

ing direct globeOf course if you close the account I can’t do anything about that.  I’m also fully aware that many accounts, like ING Direct’s Orange Savings have no minimums.  That’s perfectly fine too, as they probably don’t invest in nearly as much as the big banks do.  Personally, I’m against the minimums, but that doesn’t mean I’m not curious why they exist.  Also personally, as an employee of my bank I get the upgraded accounts with no minimums.  Its my one perk, be jealous.

This is just what I’m thinking is the purpose for the minimums.  I know banks out there read my blog so please let me know why they exist.

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categories: banking, college of weakonomics, loans, personal finance