Why Do Banks Require Minimum Balance to Avoid a Fee? 

34 Pages Posted: 17 Jan 2024

See all articles by Oz Shy

Oz Shy

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Date Written: June 11, 2024

Abstract

Large banks in the United States waive their monthly account fee if depositors maintain above a certain minimum balance in their account. This article analyzes the conditions under which banks benefit from applying this pricing strategy. I find that the minimum balance strategy is profitable when banks possess only moderate market power. In contrast, under strong market power, this strategy is less profitable than charging monthly fees to all depositors regardless of their deposit amount. Common ownership of banks reduces the gains from the minimum balance pricing strategy. Interest rate competition together with fee competition eliminate these gains.

Keywords: Checking account pricing strategy, minimum balance requirement, monthly D43, G21, L11

JEL Classification: D43, G21, L11.

Suggested Citation

Shy, Oz, Why Do Banks Require Minimum Balance to Avoid a Fee?  (June 11, 2024). Available at SSRN: https://ssrn.com/abstract=4681902 or http://dx.doi.org/10.2139/ssrn.4681902

Oz Shy (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

HOME PAGE: http://www.frbatlanta.org/research/economists/shy-oz.aspx?panel=1

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
24
Abstract Views
159
PlumX Metrics