Many overlook the importance of maintaining the required minimum balance in their savings account. However, failing to maintain the minimum balance can lead to consequences that could negatively impact your financial health.
A savings account is a type of bank account where you can deposit money and earn interest on the savings. To keep the account active, most banks require a minimum balance to be maintained. While the minimum balance varies from bank to bank, the consequences of failing to maintain it can be similar.
Here are the four effects of failing to maintain the minimum balance in a savings account:
- Penalties and charges
One of the most significant effects of failing to maintain the savings account minimum balance is the penalty or charge that the bank will levy. These charges can add up over time and significantly reduce the account’s balance. The penalty amount can vary depending on the bank and the shortfall amount in the minimum balance. In some cases, the penalty can be a fixed amount; in others, it can be a percentage of the shortfall.
- Interest earnings
Most savings accounts offer interest on the balance maintained in the account, but this is often subject to meeting the minimum balance requirement. And failing to meet this requirement can lead to the loss of interest you could have earned.
- Account closure
In some cases, failing to maintain the minimum balance in a savings account can lead to account closure. Since a savings account is central to most banking transactions, the closure of your account may cause inconvenience and you will have to go through the entire application process again to open a new savings account.
- Difficulty in achieving financial goals
Finally, failing to maintain the minimum balance in a savings account can make it difficult to achieve your financial goals. Whether you are saving for a down payment on a house or a vacation, not having enough money in your savings account can slow your progress. By incurring penalty fees and missing out on interest, you are essentially losing money that could be put toward your financial goals. This can make it harder for you to save up for the things that are important to you.
How can you avoid these consequences?
You can do a few things to avoid the consequences of failing to maintain the minimum balance in a savings account. First, be aware of your bank’s minimum balance requirements and meet them. Second, keep track of your account balance and avoid making transactions that will bring your balance below the minimum. You can set up alerts with your bank to notify you when your account balance is low, which can help you avoid penalty fees.
If you are having trouble maintaining the minimum balance, you can also consider opening a savings account with a lower minimum balance requirement.
Failing to maintain the minimum balance in a savings account can have several consequences that you should be aware of. By following some simple tips, you can avoid these consequences and ensure that your savings account remains active and helps you to achieve your financial goals.