All You Need To Know About Monthly Average Balance And Maintaining It

Monthly Average Balance (MAB), also known as the minimum average balance is nothing but the minimum amount you are required to maintain in your Savings Account every month. The figure is calculated at the end of each month and failure to maintain this minimum average balance will result in penalties.

 

How is Monthly Average Balance calculated?

 

The monthly average balance is calculated by taking the average of the end of day/ daily closing balances in your Savings Account, in a given month. For a 31-day month, the average is calculated by adding the closing day balances for all the days in the month and dividing it by 31. Here is a quick formula to help you remember it:

MAB = (Sum of all the daily closing balances)/(Number of days in the month)

Consider the following example, where the bank requires its customers to maintain an average minimum balance of Rs.5,000 in their Savings Account. For the month of May, the daily balance for a customer looks something like this:

 

Time Frame	Total days	Amount in Savings Account at the end of the day, in Rupees	Sum of the funds, in rupees
May 1 - May 5	5	3,000	15,000
May 6 - May 15	10	4,000	40,000
May 16 - May 19	4	7,000	28,000
May 20 - May 27	8	4,000	32,000

Total number of days: 27

Sum of the funds for this duration: Rs.1,15,000

So far, the monthly average balance for the first 27 days is 115000/27 = Rs. 4,259.25

Given that this MAB is well below the Rs.5,000 requirement laid down by the bank, the customer needs to increase his balance in the final four days of the month.

The amount he needs to maintain is [(31 x 5000) - (115000)]/4. It is equal to 10,000.

Hence, the customer needs to maintain Rs.10,000 on an average for the remainder of the month in his account to meet his MAB requirements.

 

Charges Levied when MAB is not Maintained

The minimum average balance charges vary from bank to bank. Generally, public sector lenders charge a lower amount in comparison to their private sector counterparts. Furthermore, the charges on non-maintenance of MAB also depend on the region you are living in, the type of Savings Account you have (priority/premium) and the bank itself.

Some lenders also calculate these charges based on how far you are behind from meeting the requirement. As a rule of thumb, the further you are, the more is the penalty you will be required to pay.

 

Tips to maintain Minimum Average Balance

 

Contrary to popular belief, it is not that difficult to maintain the MAB in your Savings Account. You just need to follow some simple tips, as mentioned below:

 

1. Don’t open multiple accounts

 
One way to reduce the hassle of maintaining a minimum average balance month after month is by operating only one Savings Account. This way, you won’t have to worry about tracking different accounts. Plus, you can access your funds with much more ease, rather than blocking them through these MAB requirements.

 

2. Make lump sum deposits

 

This is a clever way to maintain your MAB. If your MAB is Rs.5,000, then you can maintain your closing day balance at Rs.20,000 for a week or so and your average will be good to go! The fact that MAB is calculated on a monthly basis gives you a lot of room to try such tactics.

 

3. Intelligent withdrawal of money

 

In case you want to make payments, use your debit card to make the payment on the requisite day or at POS/Online when required. When you withdraw money in advance, you lose the opportunity to earn interest on your Savings Account balance.

Minimum average balance can be a tricky subject to understand but with this handy guide, you won’t have to worry about it. Research your options thoroughly and be sure to understand all the MAB requirements when you open a Savings Account. Alternately, there are many banks which offer Zero minimum balance in a Savings Account and you can save with them instead.

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