Monthly Average Balance

If you have a savings account or a current account with a bank, you may have heard of the balance requirements in place. Banks call this the monthly average balance (MAB) required. It is a common feature for most bank accounts except salary accounts, which are often zero-balance accounts where no MAB is required. 

Here’s everything you need to know about the monthly average balance and its calculation.

The monthly average balance (MAB), also known as the minimum average balance, is the minimum amount of money that you need to maintain in your account on average each month. Contrary to popular belief, it is not a requirement that needs to be met on a daily basis. Instead, the monthly average balance calculation is only done on a monthly basis. 

 

If you do not meet the monthly average balance requirements pertaining to your account, the bank will levy a penalty for non-maintenance. The charges levied for the same vary from one bank to another. 

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

• The total of the closing balances on each day of the month

• The total number of days in the month

 

Once you have these two details, you can easily compute the monthly or minimum average balance using the following formula. 

 

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

 

Let’s look at an example to understand the monthly average balance calculation better. Say you have a bank account with an MAB of Rs. 10,000. And your bank account balance looks like this during the month. 

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

 

Monthly Average Balance (MAB)  

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

= Rs. 3,02,000 ÷ 30 days

= Rs. 10,067

 

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

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 minimum average balance requirement. However, banks also have a cap on the maximum amount of penalty that can be levied for non-maintenance of the MAB. 

To avoid being penalised for non-maintenance of the MAB, you can use the following tips and ensure that your minimum average balance always meets the required limits. 

• 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 if there is a potential shortfall by the end of the month

To sum it up, the monthly average balance is a requirement for most savings and current accounts. Ensure that you are aware of the MAB requirements for your bank account, so you can maintain the required balance and avoid a penalty for non-maintenance. The monthly average balance calculation outlined above can help you understand how you can always ensure that you meet the required limits.