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If you have a savings account or a current account with a bank, you may have heard of Monthly Average Balance (MAB). Also referred to as the minimum average balance, this is the minimum amount you need to maintain in your account on average each month.

It is a common feature for most bank accounts except salary accounts, which are often zero-balance accounts where no MAB is required. If you do not meet the MAB requirements, you may have to pay penalty charges, depending on the bank.

## Calculation of Monthly Average Balance

You need the following parameters for the monthly average balance calculation:

• Total of the closing balances on each day of the month

• Total number of days in the month

Once you have these two details, you can compute the balance you need to maintain using the following formula.

Monthly Average Balance (MAB) = Sum of the daily closing balances ÷ Number of days in the month

Here’s an example to help you understand the monthly average balance calculation better. Say you have a savings account with a MAB of ₹10,000 and this is how your bank balance statement looks for the month:

 Date Number of Days (A) Closing Balance in the Account (B) Total Closing Balance (A x B) April 1 to April 7 7 ₹7,000 ₹49,000 April 8 to April 12 5 ₹5,000 ₹25,000 April 13 to April 19 7 ₹10,000 ₹70,000 April 20 to April 28 9 ₹12,000 ₹1,08,000 April 29 to April 30 2 ₹25,000 ₹50,000 Total Closing Balance ₹3,02,000

Note that these calculations have been mentioned for illustrative purposes. The actual values may vary based on the interest rate and other criteria of the bank.

So, as per the formula, the monthly average balance calculation will be done as follows:

MAB

= Sum of the daily closing balances ÷ Number of days in the month

= ₹3,02,000 ÷ 30 days

= ₹10,067

Since the MAB exceeds the required limit of ₹10,000, the bank will not levy any penalty for non-maintenance of the balance.

## Charges Applicable on Non-maintenance of MAB

The penalty levied for not maintaining the minimum average balance is different for each bank. Typically, it is charged as a percentage of the shortfall from the total requirement. Banks generally do not have a cap on the maximum amount of penalty that can be levied for non-maintenance of the MAB.

Note that the monthly average balance is calculated every month. So, if there is a shortfall for a few days in a month, you could compensate for it by maintaining a higher balance on other days.

## How to Maintain a Healthy MAB

Maintaining the monthly average balance is a requirement for most savings and current accounts, unless it’s a zero balance account. To avoid penalties for non-maintenance of the MAB, here is what you could do:

• Understand the monthly average balance requirements set by your bank

• Budget your finances smartly to ensure there is no shortfall

• Have some liquid funds available to deposit into your savings account in case there is a shortfall by the end of the month

• Avoid opening multiple bank accounts since maintaining the MAB for multiple accounts could be difficult

• Check the balance in your account on a regular basis on your bank’s mobile app or by checking your bank statements

Banks require you to maintain a monthly average balance to prove that you have a steady income source and stable spending habits. Maintaining the MAB may also positively reflect in your credit score. Additionally, this amount is an important income source for banks. It allows them to offer certain facilities like forex services, spending analytics, etc.

### Do I need to maintain the monthly average balance on each day of the month?

No, the monthly average balance is calculated on a monthly basis. So, if there is a shortfall during a few days of the month, you can compensate for the same by maintaining a higher balance on other days.

### Why do banks have a specific MAB requirement?

Banks enforce a monthly average balance because it helps assess the stability of an account holder’s finances and ensures the bank has sufficient capital. It also helps curtail steep inflation rates by regulating the liquid cash available for circulation.

### Is the monthly average balance the same as the minimum average balance?

Yes, the terms monthly average balance and minimum average balance are often used interchangeably.

### How can I check my monthly average balance?

You can check your monthly average balance on your bank’s mobile app or call the customer care helpline for more clarity. Alternatively, you can also use the monthly average balance calculation explained in this article to compute the MAB yourself.

### Do all bank accounts carry a monthly average balance requirement?

No, some bank accounts such as salary accounts may have no MAB requirements. This means you can have a nil balance in those accounts and not be penalised for the same.

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