Zero Balance Account (ZBA): Definition in Banking, and Pros and Cons

By
Julia Kagan
Julia Kagan
Full Bio

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Learn about our editorial policies
Updated August 19, 2024
Reviewed by
Khadija Khartit
Khadija Khartit
Reviewed by Khadija Khartit
Full Bio
Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder.
Learn about our Financial Review Board
Fact checked by
Diane Costagliola
Diane Costagliola
Fact checked by Diane Costagliola
Full Bio

Diane Costagliola is a researcher, librarian, instructor, and writer who has published articles on personal finance, home buying, and foreclosure.

Learn about our editorial policies
Part of the Series
Guide to Checking Accounts
Types of Checking Accounts
  1. What Is a Checking Account? Here's Everything You Need To Know
  2. 6 Different Checking Accounts
  3. Joint Checking Account
Checking Account Basics
  1. Account Balance
  2. Non-Sufficient Funds
  3. Routing Transit Number
  4. Overdraft Protection
  5. Overdraft Protection: Pros and Cons
  6. Overdraft Consequences
Opening a Checking Account
  1. The Documents You Need
  2. Pros and Cons of Checking Accounts
  3. Checking Account Beneficiaries
Paying With Checks
  1. What is a Check?
  2. Bounced Check
  3. Do Checks Expire?
  4. How to Write a Check
Using a Debit Card
  1. Debit Cards
  2. Keeping Transactions Safe
  3. Prepaid Debit Card Precautions
Best Checking Accounts
  1. Best Checking Accounts for Teens
  2. Best Rewards Checking Accounts
  3. Best High-Interest Checking Accounts
Group of people in an office discussing about company's accounts

Paperkites / Getty Images

What Is a Zero Balance Account (ZBA)?

A zero balance account (ZBA) is exactly what it sounds like: a checking account in which a balance of $0 is maintained. When funds are needed in the ZBA, the exact amount of money required is automatically transferred from a central or master account. Similarly, deposits in these accounts are swept into a master account daily.

Corporations sometimes use zero balance accounts to ensure funds are readily available throughout different departments, to eliminate excess balances in separate accounts, and to maintain greater control over the disbursement of funds. These accounts often handle items such as payroll, petty cash, and other similar needs. ZBAs aren't usually used by individual consumers.

Key Takeaways

  • A zero balance account (ZBA) is an account in which a balance of zero is maintained by transferring funds to and from a master account.
  • ZBAs aren't consumer products but are used by larger businesses.
  • An organization may have multiple zero balance subaccounts to monitor and track spending by department or project.
  • ZBAs promote risk mitigation, as a company has greater control over where its cash balances are and what unauthorized spending may occur.
  • ZBAs are also typically heavily automated. Though this limits clerical errors and incites operational efficiency in some ways, a business must still monitor and reconcile its bank statements.

How Zero Balance Accounts (ZBAs) Work

The master account provides a centralized place to manage an organization's funds. Whenever funds are required in the ZBA checking account to cover a charge or transaction, money is transferred from the master account in the exact amount required. There is no need for an employee to do this manually, as the process is fully automated.

The ZBA's activity is limited to the processing of payments and isn't used to maintain a running balance.

Using a ZBA to fund debit cards issued by the organization helps ensure that all the activity on the cards is pre-approved. Because idle funds aren't present within the ZBA, it isn't possible to run a debit card transaction until funds are supplied to the account.

The use of a ZBA as a spending control mechanism is especially helpful when managing incidental charges across a large organization. By limiting quick access to funds via debit cards, it is more likely that proper approval procedures will be followed prior to the completion of a purchase. This permits easy tracking of transfers and reconciliation across accounts.

Advantages and Disadvantages of ZBAs

Transactions from ZBAs are self-managed, often saving the account holder time from not having to manually rebalance or fund transactions. ZBAs may also be easier to reconcile, audit, or receive department-level reporting on about spending.

Because so much of ZBAs is automated, many companies find there are fewer clerical errors or transaction failures due to human error. This saves on overdraft fees. ZBAs are also great control mechanisms to monitor spending. If a company has one main account instead of many accounts with bank balances, a company can mitigate the chance of their bank account being compromised by unapproved or fraudulent transactions.

ZBAs maximize funds available for corporate investment and minimize the risk of overdraft fees.

By concentrating funds in the master account, more money is available for investments rather than having small dollar amounts idle within a variety of subaccounts. The master account often has additional benefits such as a higher interest rate on balances.

There are some downsides to ZBAs. Although sweeping and transfers are automatic, the business must still reconcile bank statements and monitor for failed transactions. Should a transaction fail to process or be canceled, money moved into that account may automatically swept back, resulting in multiple unnecessary transactions. Last, while intended to relieve administrative burdens, ZBAs proliferate the number of bank accounts a company owns and may result in higher admin demands.

Requirements To Open ZBAs

Not everyone can qualify for a ZBA. Banks will often not offer this product to general consumers and will only offer this solution to companies. In addition, banks may not provide ZBAs to small, unestablished businesses.

By its nature, ZBAs must have a linked master account, and the bank offering the ZBA will likely require the master account be held at their institution. The bank may require transaction history evidence, historical average bank balances, estimated spend projections, and applicable credit history information prior to opening the account.

FDIC-Insured

Although ZBAs don't often have cash balances, those balances are usually insured (up to certain limits) by both the Federal Deposit Insurance Corp. (FDIC) and the National Credit Union Administration (NCUA).

Special Considerations

An organization may have multiple zero balance accounts to improve budget management and make the process of allocating funds more efficient. This can include creating a separate ZBA for each department or function as a way to monitor daily, monthly, or yearly charges.

Other reasons for creating separate ZBAs might involve the financial management of particular short-term projects or those at particular risk for unexpected overages. The use of zero balance accounts helps to prevent excess charges without proper notification and approval.

What Is a Zero Balance Account?

A zero balance account, or ZBA, is a bank account that intentionally carries a $0 balance. A company only funds the account when items need to be paid, and any remaining cash after deposits is often swept at the end of the night. A zero balance account relies heavily on a master account to sweep its money.

Is a Zero Balance Account Bad?

In the context of the financial product, a zero balance account isn't bad. A company intentionally holds $0 in the account and only puts money into it when a transaction will occur. A company does this to strategically manage cash and protect its assets.

How Can I Open a Zero Balance Account?

Zero balance accounts are often only offered to businesses. In addition, a business must often have been operating for some time with credit history, banking history, and proof of future cash flow prior to opening a ZBA.

What Are the Benefits of a Zero Balance Account?

A zero balance account automatically sweeps funds from a master account to pay obligations or sweeps unused funds into a master account. The account is intended to increase the efficiency of how cash is used, limit risk and fraud, and streamline the banking process.

The Bottom Line

A zero balance account (ZBA) is a business checking account in which a balance of $0 is maintained. When funds are needed in the ZBA, the exact amount of money required is automatically transferred from a central or master account. In addition, deposits are swept back into the master account daily.

Corporations sometimes use zero balance accounts to ensure funds are easily available across different departments, to remove excess balances in separate accounts, and to keep greater control over the disbursement of funds. These accounts often handle payroll, petty cash, and other similar needs. ZBAs aren't usually offered to individual consumers.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. Citizens Business Bank. "Zero Balance Account (ZBA)."

  2. Thomson Reuters Practical Law. "Zero Balance Account."

Part of the Series
Guide to Checking Accounts
Types of Checking Accounts
  1. What Is a Checking Account? Here's Everything You Need To Know
  2. 6 Different Checking Accounts
  3. Joint Checking Account
Checking Account Basics
  1. Account Balance
  2. Non-Sufficient Funds
  3. Routing Transit Number
  4. Overdraft Protection
  5. Overdraft Protection: Pros and Cons
  6. Overdraft Consequences
Opening a Checking Account
  1. The Documents You Need
  2. Pros and Cons of Checking Accounts
  3. Checking Account Beneficiaries
Paying With Checks
  1. What is a Check?
  2. Bounced Check
  3. Do Checks Expire?
  4. How to Write a Check
Using a Debit Card
  1. Debit Cards
  2. Keeping Transactions Safe
  3. Prepaid Debit Card Precautions
Best Checking Accounts
  1. Best Checking Accounts for Teens
  2. Best Rewards Checking Accounts
  3. Best High-Interest Checking Accounts
Open a New Bank Account
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.