I'm learning in economics that if your balance gets too low, you have to pay a fee. Why is this? Is it to help support the bank, or as a punishment? Or is it both?
Banks are businesses. The bottom-line goal of any business is to generate profits for shareholders/owners.
Banks generate revenue through various means, but largely from making loans to other bank customers and charging interest on top of the loan amount. They then share a certain percentage of the interest with their customers.
Additionally, every account, big or small, cause a bank to incur expenses in order to maintain it: capital investments in branch locations/technology, paying people to answer the phone when you call, etc. Expenses are paid for by the revenues generated by the bank's product and service offerings (see above).
It logically follows that the bank stands to make less money on smaller accounts, because:
Depending on the jurisdiction and associated regulations, banks can't exceed a certain ratio of outstanding loans to deposits on hand (see: fractional reserve banking). Minimum balance fees encourage customer behaviors that increase the bank's "deposits on hand", thereby allowing banks to loan more money to customers and, consequentially, collect more interest.
Without getting too "in the weeds" on the regulatory front, this is why you see minimum balance restrictions on checking and other "transactional" accounts vs. savings accounts and CDs, as fractional reserve rules generally don't apply to non-transactional accounts. Tangentially, this is also why banks will re-classify your savings account as a checking account when you execute too many transactions in a certain time period.
Even if you have a small amount of money in the account, they still have to pay the employees the same amount to answer the phones for you when you call, pay to keep the lights on in the branch that you'd like to visit, etc. As such, a minimum balance figure is set at a particular amount where they are likely to break even (and then some) on your specific account. A minimum balance fee charged when the total balance dips below this threshold helps offset the cost of having that account on the books when the bank can't exactly make enough money on the balance in the account to justify providing those services to you.
Depending on the jurisdiction in question, there are also certain regulatory figures a bank must meet to avoid fines/lawsuits/etc. and continue to make loans and, consequentially, generate revenue. Smaller accounts usually hurt the bank's goals in this realm, so they have this incentive as well to encourage customers to keep larger balances.
It's worth noting that, in 2021, there are banks that do not enforce minimum balance rules and will allow you to keep any amount, no matter how small, in an account. For the most part, these institutions generally operate mostly/all online and do not incur the same capital investment and operating expenses as a traditional brick-and-mortar organization would. They may also charge slightly higher fees for other services to recoup elsewhere what they would have charged as a minimum balance fee.
Investopedia has an easy-to-understand article on minimum balances.
Assuming you're talking about a low balance (non-negative) in a checking account...
I think it could be summed up by saying:
- Not all banks have fees for low/min balances
- Banks are a business, and have a lot of overhead expenses
- If you don't have a decent amount of money in the bank or are not borrowing money, they can't make money off of you
So the reasons are likely:
- Because they can
- So they don't lose money from you
It costs money to maintain your account. Financial statements must be generated, interest rates calculated, tax statements need to be sent out, etc. If you opened an account, and left no money in it then the bank is spending money on maintaining your account and not generating any money from the account. You could imagine if millions of people opened an account at a bank and put no money in those accounts, how much the bank would lose each month.