What is the meaning of compensating balance?

noun

  • A minimum credit balance that a bank may require a borrower to keep on deposit as a condition for granting a loan; a common requirement for establishing a line of credit at a bank.
    • usage: "the compensating 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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APAWordNet. (2010). compensating balance. Retrieved September 24, 2026, from http://smartdefine.org/compensating_balance/definitions/1243143
ChicagoWordNet. 2010. "compensating balance" http://smartdefine.org/compensating_balance/definitions/1243143 (accessed September 24, 2026).
HarvardWordNet 2010, compensating balance, Smart Define, viewed 24 September, 2026, <http://smartdefine.org/compensating_balance/definitions/1243143>.
MLAWordNet. "compensating balance" 23 October 2010. Web. 24 September 2026. <http://smartdefine.org/compensating_balance/definitions/1243143>
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