Dedicated to Deposits: Deals, Data, and Discussion

Beware of Zero Balance When Withdrawing from Internet Savings Accounts


With interest rates plummeting on many internet savings accounts, more people are transferring their money out of those accounts. If you do transfer out your money, make sure you don't go below the minimum balance that could trigger a monthly fee. If the bank claims not to have a minimum balance requirement for the account, you may be tempted to transfer out 100% of the money. You have to be careful when you leave a zero balance in your account even for banks which claim they don't have a minimum balance requirement. With a zero balance, the bank may consider the account closed, and they may not pay interest for that month. For these cases, it's best to leave at least $1 in the account until the interest for the previous month has been credited.

A reader emailed me a problem that he had with 1st Constitution Direct. He transferred all of his money out before the end of the statement period, and 1st Constitution Direct is refusing to pay him the interest accrued for the last month. 1st Constitution Direct does state in its FAQs that there is no minimum balance requirement:

Must I maintain a minimum balance in my 1st Constitution Direct account?

You must open your account with the required minimum initial deposit. Once your account is established, there is no minimum balance requirement.

The reader also forwarded me an email from 1st Constitution Direct which informed him the account has not been closed yet, but it will be closed if he doesn't fund it. Unfortunately, they don't appear to have a copy of the terms and conditions on their website. Based on the FAQ, it sure seems that the fair thing to do would be for 1st Constitution Direct to pay the accrued interest for February.

I've seen a similar issue happen at Emigrant Direct which also claims on its website to have no minimum balance requirements. Emigrant Direct's disclosure does state that "If you close your Account before interest is credited, you will not receive the accrued interest." However, I don't see where they say that a zero balance is equivalent to having closed the account.

Even if you are right in terms of the fairness of this issue, it's not worth the time or the money. Just make sure you leave at least $1 in any "no-minimum" account until your interest is credited. Then you can transfer out the remaining balance.

It's a good idea to check with the bank for account closure instructions and to ensure you won't be hit with any fee. For most internet banks the typical process is to transfer your remaining balance out and then send them a secure message instructing them to close the account. Just be sure you receive your last month interest before you transfer out all of your funds.


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Comments
9 comments.


Comment #2 by Anonymous posted on
Anonymous
Actually I find that many (if not most) banks today close an account automatically if it has a zero balance for a particular amount of time. With some banks it is very quick, like a couple of days at zero and boom it's closed.

It's important to be aware of this. On the plus side it makes closing accounts easier because often all you have to do is withdraw all the money and it's closed. I have dozens of accounts with a balance of $0.01 to keep them open.

4
Comment #4 by cneiman posted on
cneiman
I was going to say the same thing as Anonymous: the only way that some banks (like HSBC, Emigrant) allow you to close an account is by depleting the account to zero; then their automatic closing mechanism kicks in. And so many banks don't pay interest in the amount you close the account, I just assume this is the case across the board and close an account only after I've received my interest.

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Comment #5 by cneiman posted on
cneiman
I meant to say "so many banks don't pay interest in the month you close the account."

1
Comment #6 by Sandra (anonymous) posted on
Sandra
A complication to keep in mind is that some banks have MINIMUM transfer amounts. For example, Amtrust has a $50 minimum transfer amount. So, if say you left $1 in the account, and the last month's interest accrued was $40, you would have $41 in the account after the interest was credited. But, you would not be able to transfer out that $41 because it is less than the minimum transfer amount. It sounds crazy, but I actually ran into this problem. The only way around it was to transfer IN an additional $50 (the minimum), wait for it to clear, and then transfer out $91.

Sandra

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Comment #7 by Anonymous posted on
Anonymous
Hi BankDeals, 1st Constitutional Direct Bank states in their Electronic Fund Transfer Disclosure Statement that "Effect of Closing an Account - If you close your account before interest is credited, you will not receive the accrued interest." Also, according to the Terms and Conditions Agreement, which both are found on the website under details and enrolling now, it states: "Closing an Account: Either you or we may close your account at any time and for any reason. We may close your account without advance notice." In your reader's case, the bank has decided to close the account; but to give reader a chance to fund it to keep it open. That's how I interpreted it.

2
Comment #8 by ctgottapee (anonymous) posted on
ctgottapee
yes Emigrant only allowed me to close by zeroing the account

 

they did send me a check for 19 cents of interest though from the prior statement i guess

1