“No Minimum Balance” and Other Terms to Know When Opening New Accounts

If you’re new to managing bank accounts and other banking products, you’ll likely encounter terms like “no minimum balance,” “interest rates,” and “maintenance fees.” When that happens, make sure to take note of these terms because they define how your account works and can affect the costs associated with it.

As you continue to manage your finances, you’ll come across even more banking terms that influence how you use your account. Taking note of these terms is especially important, as it ensures that you’re not caught off guard by hidden charges and that you choose an account that fits your financial needs and goals.

In this article, we’ll walk you through some of the key banking terms you should be familiar with when opening a new account to help you stay informed throughout your financial journey.

No Minimum Balance 

One of the first things you’ll often notice when comparing bank accounts is whether it requires a “minimum balance” or not. If an account has no minimum balance, it means you are not required to keep a specific amount of money in your account at all times. This feature or perk is particularly useful for individuals with unpredictable income, such as freelancers, part-time workers, or students, as it gives more flexibility without the pressure of maintaining a certain balance just to keep the account active or fee-free.

Many digital banks, like Maya, often offer this type of account. A Maya deposit account, for instance, doesn’t require a maintaining balance, which makes it an attractive choice for those who may not have a consistent inflow of funds but still want to enjoy the convenience of digital banking.

Maintaining Balance

On the other hand, many banks offer accounts with a maintaining balance requirement. This is the average daily balance (ADB) you need to keep in your account every month to avoid charges. Failing to meet the required maintaining balance can lead to monthly penalties or, in some cases, account closure after several months of non-compliance.

If your account requires a maintaining balance of PHP 5,000, for example, you should ensure your account never drops significantly below that amount throughout the month. Even if you deposit a higher amount later on, your ADB might still fall short if your funds dropped too low earlier in the month. 

Interest Rate and Interest Rate Per Annum 

Interest is the money your bank pays you in return for keeping your funds in a savings account. It’s one of the reasons why putting money in the bank is better than keeping it in a drawer at home. The interest rate is usually expressed as a percentage and is calculated based on how much money is in your account and how long you leave it there.

You’ll often see the term per annum or p.a. beside interest rates. This simply means “per year.” So if a bank offers 2.5% interest p.a., you can expect to earn that percentage annually, provided you keep your money untouched for the entire year.

Let’s say you deposit PHP 10,000 in a savings account with a 2.5% p.a. interest rate, you could earn a total of PHP 250 in one year before tax. However, this interest is usually computed monthly or daily and then credited on a scheduled basis, such as quarterly.

Take note that traditional banks often offer lower interest rates, sometimes as low as 0.1% to 0.25% p.a. In contrast, digital banks can offer up to 6% p.a., especially for promotional accounts or time-bound offers. While interest won’t make you rich overnight, it’s still a smart way to grow your savings slowly but surely.

Withholding Tax on Interest Earned

Many new account holders are surprised to see that the interest they earn is slightly less than expected. This is because of the withholding tax on interest earnings, which is currently 20% in the Philippines. It’s a government-mandated tax automatically deducted from the interest you earn on your savings account.

So, when comparing interest rates, be sure to ask if the advertised rate is gross (before tax) or net (after tax). It will help you have a clearer expectation of how much you’ll actually receive.

Transfer Fees

As digital banking becomes more common, transferring money from one account to another has also become easier—but not always free. Thus, it’s important to understand the fees that come with such transfers.

In the Philippines, inter-bank transfers (from Bank A to Bank B) are often done using Instapay or PESONet. Instapay allows for real-time transfers, which means the recipient receives the funds instantly. It’s commonly used for small amounts (up to ₱50,000), and the fees typically range from PHP 8 to PHP 25 per transaction, depending on the bank. PESONet, on the other hand, is used for larger amounts and processes the transaction within the same day or the next banking day. Some banks charge a fee for this, while others don’t. Meanwhile, intra-bank transfers (from Bank A to another account in Bank A) are usually free of charge.

Withdrawal Fees

While depositing and saving money is the main purpose of most accounts, it’s equally important to know the costs of taking your money out, especially if you often rely on ATMs. ATM withdrawal fees depend on where and how you withdraw. Using your own bank’s ATM is usually free, but if you withdraw from another bank’s machine, you might be charged between PHP 10 and PHP 18 per transaction. This can quickly add up if you make multiple withdrawals each month.

Some digital banks also issue physical debit cards you can use at ATMs. While withdrawals might still incur fees when using other bank ATMs, some digital banks offer monthly rebates or free withdrawals up to a certain number of times.

To save on fees, it’s smart to plan your withdrawals ahead of time and, whenever possible, withdraw larger amounts less frequently.

When opening new accounts, take the time to understand the basic terms and conditions so you can make better financial decisions. Additionally, compare banks and ask for clarifications whenever there’s something you aren’t familiar with. Remember, when you’re armed with the right knowledge from the start, managing your money becomes easier and more convenient.