Compensating balance

Compensating balance

An offsetting balance. A requirement by some banks that a borrower maintain a minimum balance in a checking or savings account as a condition of a loan. The offsetting balance increases the effective interest rate to the bank since the net amount loaned is reduced but the interest paid is unchanged.

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Part of Speech: noun
Synonym(s):
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Industry/Domain: Accounting
Category: Auditing
Company: AIS
Product:
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Related terms

compensating balance

Accounting; Auditing

An offsetting balance. A requirement by some banks that a borrower maintain a minimum balance in a checking or savings account as a condition of a loan. The offsetting balance ...

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An excess balance that is left in a bank to provide indirect compensation for loans extended or services provided.

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A minimum amount of money that a person or company must keep in a no-interest checking account to compensate a bank for loans or other services.

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