What Is Minimum Balance?
For bank accounts, the minimum balance is the minimum dollar amount that a customer must have in an account to receive some service benefit, such as keeping the account open or receiving interest. For margin accounts, the minimum deposit amount before margin trading is allowed; and after a stock is purchased on margin, the maintenance requirement in the margin account.
Understanding Minimum Balance
Bank accounts that fall below the minimum balance may be assessed fees, denied interest payments, or closed. The minimum balance may be an average balance or the actual dollar balance in the account. Banks measure and enforce the minimum balance in different ways. There can be more than one minimum balance for the same account. For example, a certain balance may be required to keep an account open, while a higher balance may be necessary to qualify for fee waivers or interest payments on deposits.
Minimum Balances in Margin Accounts
Margin accounts with a brokerage firm are subject to minimum balances. According to Financial Industry Regulatory Authority (FINRA) rules, a minimum deposit of $2,000 or 100% of the purchase price of the security, whichever is less, is mandatory to establish a margin account. After a stock is bought on margin, the maintenance requirement specifies the minimum amount of 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. It is at the discretion of individual brokerage firms to set the maintenance requirement percentage higher than 25%, with some going as high as 40% or even more depending on the type of securities purchased. If there is a shortfall, the brokerage firm will issue a margin call, a demand that the investor deposit additional cash or securities to satisfy the minimum balance of equity. Failing that, the brokerage firm will unilaterally liquidate securities in the account until the minimum is met.