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.
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.
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.
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:
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.