Zero Balance Checking Accounts (ZBA)

Some banks offer zero balance checking accounts, although a fee is charged for this service. A company might need to maintain several checking accounts at the same bank for different purposes, such as a payroll account and a general disbursements account. In a zero-balance account setup, these individual account balances are maintained at zero until checks are received by the bank for payments from the accounts. The resulting “overdrafts” are automatically ‘covered’ by the bank by transferring money from a centralized concentration account that the company holds. More money can be freed up for short-term investment in accounts that pay a return because excess balances in multiple disbursement accounts are not needed.

This cash management technique involves maintaining regional bank accounts to which just enough funds are transferred daily to pay the checks presented. Regional banks typically receive the checks drawn on their customer’s accounts in the morning from the Federal Reserve. The customer (firm) can then be notified as to the amount of cash needed to cover the checks and arrange to have that amount of cash transferred to the account. This arrangement has two advantages: 

1. Checks take longer to clear at a regional bank, providing more clearing float for cash disbursements,
2. Extra cash does not have to be deposited in the account for contingencies.