The 2,000 dollar bar is harder than the 5,000 dollar one, and the reason is the method rather than the number

A reader wrote in July with a business account minimum balance fee she wanted to stop paying, and I gave her the answer that seemed obvious. Her bank offered 2 ways out of a 15 dollar monthly charge, a 2,000 dollar bar and a 5,000 dollar bar, and I told her to aim at the smaller one. I was wrong, and the mistake took me a while to see, because 2,000 is smaller than 5,000 in the only sense I was thinking about.

The 2 numbers are not measured the same way. One is a minimum daily balance, which means the lowest figure your account touches on any single day in the period. The other is an average. For a business that runs payroll on the 15th, the higher bar is often the easier one, and I had told her to walk at the wall rather than the door.

I went looking for the schedules themselves after that, and read the 3 page PDF rather than the marketing page above it. I also went to check what the disclosure rules require a bank to tell you, and found something I had assumed the other way round for years. What follows is the arithmetic, the rule that does not protect you, and what I would ask my own bank in writing.

The rule that stops at the business account door

There is a federal regulation that governs deposit account disclosure, and it is precise about this exact problem. It requires an institution to disclose the minimum balance needed to avoid a fee, and then adds that “the disclosure shall state how the balance is determined for these purposes”. The official commentary goes further and says institutions may use different methods and periods for different purposes, giving the daily balance for a calendar month and the average daily balance for a statement period as its 2 examples, and that “each method and corresponding period must be disclosed”.

That is exactly the protection a business owner needs, written in plain language by somebody who had clearly met this problem, and it does not apply to a business owner at all. The regulation defines an account as a deposit account “held by or offered to a consumer”, and defines a consumer as “a natural person who holds an account primarily for personal, family, or household purposes”. A company is not a natural person and a business account is not held for household purposes.

We have written about the same line before, in a piece about fraud liability, and the boundary sits in the same place. I had assumed disclosure rules were general and fraud rules were the exception. It is the other way round. The consumer perimeter is the rule, and a business account lives outside it for both.

In practice the large banks disclose the method anyway, because a schedule that hid it would produce complaints they do not want. They do it because they choose to. The wording varies between them, nobody is obliged to make it comparable, and I do not know how a smaller institution behaves here because I have not read enough of their schedules to say.

What the schedules actually say

Wells Fargo publishes a 3 page fee sheet for its entry level business account. The monthly service fee is 15 dollars, and it comes off with any 1 of several conditions. The first is a “$2,000 minimum daily balance”. The second is a “$5,000 average combined business deposit balance”. Same fee, same account, 2 doors, and the locks are not the same lock.

Bank of America runs the same structure at a different level, and comparing the 2 banks side by side is what finally made the mechanism obvious to me, because the pattern repeats with different numbers and the numbers are the part everybody looks at first. Its entry business account is 16 dollars a month, waived after the first 12 months by conditions that include a 5,000 dollar combined average monthly balance. The next account up costs 29.95 dollars and asks for 15,000 as an average. For its rewards programme the bank describes the qualifying balance as “your average daily balance for a three-calendar month period” or the current combined balance, which is a third method again.

Across 2 banks and 4 products I count 3 ways of measuring 1 idea. None of them is unfair. They answer different questions, and the question decides which business passes. I suspect the variety is mostly historical rather than designed, but that is a guess and I cannot tell you what happened inside a product committee 20 years ago.

The arithmetic, on our own numbers

Take a company holding 9,000 dollars for most of the month, paying 8,200 in wages on the 15th, and receiving 8,000 from a client on the 22nd. Every figure here is ours and you can change any of them.

The company with the higher average fails the lower bar, which still strikes me as an odd result even now that I understand exactly why it happens. It fails on 7 days out of 30 and passes comfortably on the other 23, and the fee arrives anyway, because a minimum is a minimum. A business keeping a flat 2,500 dollars all month passes the first test and fails the second, on far less money. Steadiness beats size in 1 test. Size beats steadiness in the other.

That is the whole point I had missed in July. The number tells you nothing without the method attached to it, and the 2 tests select for different kinds of business rather than for different sizes.

The linked account trap, which cuts both ways

Read the Bank of America wording again and 2 words do a lot of work: the 5,000 dollar test is a combined average across “eligible linked business deposit accounts”. Wells Fargo uses combined language on its average test too, and single account language on its minimum daily test. That difference is worth more than it looks.

If your money is spread across a checking account and a savings account at the same bank, a combined test may already be satisfied by cash you had forgotten about. I have watched a company pay a fee for 8 months while holding 30,000 dollars in a savings account 1 click away in the same online banking, because nobody had asked whether the 2 accounts were linked for this purpose.

It cuts the other way at the moment you move money out. A business that shifts its reserve to a higher yielding account at a different institution can trip a fee it has never paid, and the amount is small enough that it goes unnoticed for a year. Check the linkage before you move the reserve. Not after.

The general shape is that combined tests reward keeping everything in 1 place, which is the thing the bank wants and the opposite of what a deposit insurance calculation would tell you to do above 250,000 dollars. Those 2 pieces of advice genuinely conflict, and I have not found a clean way to reconcile them for a company holding somewhere in the middle.

What I would ask my own bank

Ask 3 questions and ask them in writing, by secure message if the bank has one, so the answer is on the record. Which method applies to my account, over which period. Is the balance measured on this account alone or across linked business deposit accounts. And does the period follow the statement cycle or the calendar month, because a payroll date that sits 2 days before a cycle boundary lands in a different period depending on the answer.

Then look at your own worst day rather than your average. That single figure decides the minimum daily test on its own, and it is the number nobody looks at, because a statement is read from the bottom line upwards and the bottom line is the closing balance for the month rather than the lowest point inside it. Pull 3 months of statements and find the lowest closing balance in each. If the answer is well under the bar, the average door is the one to aim at, and moving a receivable forward by 2 days is a cheaper fix than holding more cash.

Then check what else the schedule charges you for. The same Wells Fargo sheet gives 100 transactions free per period and 50 cents each after that, and prices cash deposits at 0 dollars for the first 5,000 and 30 cents per 100 dollars above it. A shop banking 14,000 dollars of cash a month is paying about 27 dollars in cash handling, which dwarfs the 15 dollar fee this whole piece is about. I find that mildly annoying, since the fee with the loud number attached is the small one, and the one nobody mentions scales with how much cash you take.

None of this is advice about your own account and I am not your banker. A relationship manager can tell you in 5 minutes which test applies to your account. That conversation is worth more than any comparison table, including this one, because it is the only version of the answer that is about your money rather than about a product page.

A short digression about why the fee exists at all

The monthly fee is not really a charge for the account. It is a price on being a small depositor, and the balance test is the mechanism that sorts customers into paying and not paying without anybody having to say so. That is why the 2 doors exist. One rewards a business that never dips, the other rewards a business that holds more on average, and between them they catch most of the customers a bank wants to keep. Anyway, back to the statement.

What I could not establish

What share of business accounts actually pays this fee. The banking agencies publish deposit totals and complaint counts, and I have not found a published breakdown of fee incidence on business checking. I asked 2 bookkeepers who between them see a few dozen small company accounts and got the same shrug from both, which tells me it is common and tells me nothing about how common.

Whether the method is negotiable. My guess is that it is not, because the method is written into the product rather than into the relationship, but I have not tested it and I am not going to pretend otherwise. I would be glad to hear from anybody who has moved a bank off a minimum daily test.

The detail I keep thinking about is that the disclosure rule I quoted at the top exists, is clear, and was written for exactly this confusion. It stops at the word consumer. A shop owner reading a business fee schedule has no right to the explanation that the same person, reading a personal fee schedule 5 minutes later, is guaranteed by law. Nobody I asked will say why the line was drawn there, and the usual answer, that a business can look after itself, does not survive 5 minutes in a room with a small business owner and a fee sheet.