Zero Balance Accounts: Definition, Use Cases & Benefits

How Do Zero Balance Accounts Work?

What is a Zero Balance Account?

A zero balance account is any account that is maintained with a purposeful balance of zero. Businesses use them to make payments, only keeping enough in the account to cover pending debits. Since these accounts don't have a running balance, there's no interest earned on them. However, they're a useful method of keeping money liquid and separate from interest-earning balances.

A zero balance account is also useful for controlling money as it flows in and out. There's less chance of money loss from bounced checks, theft and mistakes. Plus, banks do their best to expedite transfers between zero balance and other accounts, making funding fast and dependable. Although banks charge a fee for these accounts, medium to large businesses may find that they benefit from the time-saving separation of disbursement and interest monies.

The Benefits of a Zero Balance Account

A zero balance account allows money to work for the investor, rather than sitting in a checking account that earns a fraction of the return. According to Sovereign Bank, the accounts are a hands-off method of money management; as long as the primary (interest-bearing account) is at the same bank, transfers can be automated from one account to another (see link in Resources). In fact, many banks set up the transfers to happen overnight automatically, freeing up energy for other tasks. This is great for payroll and other regular expenditures. It also makes for easier bookkeeping, since there are no balances to juggle or tend to in the records.

Where Can I Get a Zero Balance Account?

Most major and community banks offer zero balance accounts. However, any checking account can be a zero balance account, as long there's no standing balance. For personal banking customers, it would be difficult to set up a zero balance situation; personal savings accounts often charge for more than six withdrawals a month, so bookkeeping would have to be precise to avoid hitting any limits. Plus, there might not be enough of an interest benefit to warrant the effort. Business customers can speak to their bank about zero balance account options.