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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.

## What is the Monthly Average Balance?

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.

## How is the MAB Calculated?

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.

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

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.

## 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 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.

## Tips to Maintain a Healthy 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

## Conclusion

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.

## Frequently Asked Questions

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.

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.

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

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.

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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