What Is a Minimum Deposit?
A minimum deposit or initial deposit is the minimum amount of money required to open an account with a financial institution, such as a bank or brokerage firm.
Higher minimum deposits are generally associated with accounts offering premium services, whereas products oriented toward a mainstream audience generally offer lower minimum deposits to attract new customers.
Key Takeaways
- Minimum deposits are the amount of money which must be contributed upon the set-up of a particular account.
- Higher minimum deposit requirements are generally associated with premium services.
- In recent years, increased competition has led to a decline in minimum deposit requirements among some financial service providers.
How Minimum Deposits Work
In the United States, minimum deposits can vary widely. While some services offer no minimum deposit requirement, others set their minimum at $10,000 or more.
From the perspective of the service provider, minimum deposits help ensure that the revenues generated from the customer will be sufficient to cover the administrative costs and other overheads associated with servicing that account.
Generally, higher minimum deposit requirements are associated with premium products, whereas mass-market offerings will generally reduce or even waive their minimum deposit requirements. For example, a full-service brokerage might require a minimum deposit of at least $10,000 in exchange for added features, such as reduced trade commissions, access to analyst reports, or more complete and timely data from the exchanges. A discount brokerage, by contrast, might waive their minimum deposit requirements but offer a more pared-down service with less advanced features.
Today, growing competition among financial services firms has led to reduced fees and minimum deposit requirements in some sectors. This is particularly visible in the discount brokerage and investment management industries, where firms such as Wealthsimple and Betterment offer low-cost platforms that, in some cases, have no minimum deposit requirements. This low-cost approach has even extended into other fee areas, such as by eliminating per-trade commissions.
In addition to minimum deposit requirements, other areas where financial firms can compete to attract customers include annual account fees, asset management fees, and fees associated with withdrawing or transferring funds.
Real-World Example of a Minimum Deposit
To illustrate, consider the pricing options offered by the two financial firms mentioned above. For customers wanting the cheapest option, Wealthsimple and Betterment both offer account options with no minimum deposit requirements. However, customers wishing to access more advanced features can do so by providing higher minimum deposits.
For instance, Wealthsimple offers an account for minimum deposits of $100,000 and above, which provides reduced annual fees, as well as additional services, such as oversight from a financial adviser. Another plan, for deposits of $500,000 or more, offers additional benefits such as a discounted health plan.
Betterment offers a slightly different model, in that its premium plan (for deposits of $100,000 and above) carries a higher management fee. In exchange, however, the premium plan offers access to a team of financial planning professionals who can advise the customer on a range of topics, such as retirement and estate planning.
FAQs
A minimum deposit or initial deposit is the minimum amount of money required to open an account with a financial institution, such as a bank or brokerage firm.
What is an example of a minimum balance? ›
An example of a minimum balance would be the amount of cash required in a bank account at a financial institution to reap a certain reward. For example, Bank ABC may charge $10 a month to keep a bank account open but if you keep a minimum balance of at least $200 in the account at all times, it will waive the $10 fee.
What are the two examples of deposit? ›
The following are the two common types of deposits:
- Time Deposit. A bank deposit with a fixed interest rate and term is called a time deposit. ...
- Demand Deposit. The money deposited with a financial institution that can be drawn from the account without providing any prior notice is called a demand deposit.
A deposit is essentially your money that you transfer to another party, such as when you move funds into a checking account at a bank or credit union. In the case of depositing money into a bank account, you can withdraw the money at any time, transfer it to another person's account, or use it to make purchases.
What is the minimum for a deposit? ›
The minimum deposit you need for a Nationwide mortgage is 5% of the property price, which would be a 95% mortgage.
What is a minimum monthly deposit? ›
Minimum monthly deposit: The minimum monthly deposit, or minimum balance, is the amount you keep in your account to take advantage of specific benefits or avoid fees.
What is an example sentence for minimum balance? ›
Interest payments will skyrocket if you pay the minimum balance on your credit card each month.
How does minimum balance work? ›
Monthly Average Balance (MAB), also known as the minimum average balance is nothing but the minimum amount you are required to maintain in your Savings Account every month. The figure is calculated at the end of each month and failure to maintain this minimum average balance will result in penalties.
What is minimum balance payment? ›
Meaning of minimum amount due in Credit Card
It represents the least amount you can pay to sidestep late charges and ensure your account remains favourable with the lender. This sum is usually determined as a fraction of your entire outstanding balance, inclusive of any accumulated interest and applicable fees.
What is an example with deposit? ›
Examples of deposit in a Sentence
The taxi deposited us at the train station. Noun Our records show that she made a large deposit to her account earlier in the month. If you return that empty soda can, you'll get back the five-cent deposit you paid when you bought the soda.
To deposit money at a bank branch, provide your cash and endorsed checks and a deposit slip to the teller. Both checks and cash can be deposited in-person at any of your bank's locations.
What is an example of a cash deposit? ›
Some examples of common cash deposit sources include: Income earned from tips or side gigs paid in cash. Repayment of a personal loan you provided to someone else. Money you borrowed from a personal loan.
How does my deposits work? ›
mydeposits does not physically hold the tenant's deposit unless a deposit dispute is initiated at the end of the tenancy. Your letting agent keeps the deposit in a segregated bank account at all other times.
How do you write a deposit? ›
Write today's date and your account number on the slip. List the check(s) you're depositing with the amount, check number, and your endorsem*nt on the back. Add up the check amounts and write the total deposit. Verify that the information is accurate.
What is an example of a time deposit? ›
A time deposit is an interest-bearing bank account that has a pre-set date of maturity. A certificate of deposit (CD) is the best-known example.
What does minimum deposit mean on a credit card? ›
Minimum deposit requirements are usually $200 to $300. Your deposit is usually equal to your credit limit — so if you put down a $500 deposit, you'll have a credit line of $500. Once the account is open, you use a secured card like any other credit card: You make purchases with it, and then you pay off those purchases.
Is a minimum deposit the same as a minimum balance? ›
Minimum deposits work by setting a threshold that must be met to open or maintain a bank account. The minimum opening deposit is required to open a new account, while the minimum monthly balance must be maintained each month (or day) to avoid fees or earn a higher interest rate.
How much deposit do you really need? ›
Ideally, you should save as much as possible before buying a home. The minimum required deposit is 10%, but aim for 20% if possible. If you're borrowing more than 80%1 of the property value, you'll need to take out Lenders' Mortgage Insurance or Low Deposit Premium.
What is the meaning of deposit amount? ›
an amount of money paid into an account: She made a large deposit last Thursday. A deposit is also a sum of money that is given in advance as part of a total payment for something: Will you get your deposit back if you cancel the trip?
