compensating balance

Definition

The amount of money a bank requires a customer to maintain in a non-interest bearing account, in exchange for which the bank provides otherwise free services.

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You need to make sure that you have enough of a compensating balance before you ever ask for that big loan.

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There was a large compensating balance that we had to live with and that made everyone wonder what would happen.

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The bank requires that I maintain a specified compensating balance in my operating account versus my money market to avoid additional bank fees.

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