You walk into a bank, open a new account and are handed a list of requirements. Among them, you see ‘Monthly Average Balance’ or MAB. You wonder why this figure is so significant and it starts to feel like just another box to check. But the truth is that MAB plays a vital role in your banking experience. So, let’s understand its meaning and importance.
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What is Monthly Average Balance?
The Monthly Average Balance is the average amount you need to keep in your bank account throughout a month. It’s calculated by adding up the balance at the end of each day and dividing that total by the number of days in the month.
Calculation of MAB
Let’s say you have a savings account where the balance changes each day. At the end of each day, you note down the amount. For simplicity, let’s assume your account has a balance of ₹1,000 for the first 10 days, ₹2,000 for the next 10 days and ₹3,000 for the remaining 10 days.
Add up all daily balances
₹1,000 for 10 days: ₹1,000 × 10 = ₹10,000
₹2,000 for the next 10 days: ₹2,000 × 10 = ₹20,000
₹3,000 for the last 10 days: ₹3,000 × 10 = ₹30,000
Now, add these up: ₹10,000 + ₹20,000 + ₹30,000 = ₹60,000
Divide by the number of days (30 days in this case)
MAB – ₹60,000/30 = ₹2,000
This means your Monthly Average Balance for that month is ₹2,000. Meeting this balance requirement helps you avoid penalties and often unlocks benefits from the bank.
Why are there Monthly Average Balance charges?
Banks impose Monthly Average Balance charges primarily to cover the operational costs associated with maintaining savings accounts. These help them fund services like account management, transaction processing and customer support. It ensures that your accounts remain active and well-maintained.
By requiring account holders to maintain a minimum balance, banks can secure a consistent level of deposits, which in turn supports their lending activities and other banking operations.
Moreover, MAB charges also encourage financial discipline among account holders. Keeping a steady balance can open up access to additional benefits like higher interest rates, waived fees and exclusive services. Banks often provide perks to customers who maintain the required MAB, which can include things like free ATM withdrawals and access to premium banking products.
Is there a way to manage Monthly Average Balance charges?
Managing your Monthly Average Balance can help you avoid charges and penalties. Here are a few strategies to stay on top of it:
- Track your balance regularly:
Monitoring your account frequently helps you stay aware of your daily balance, making it easier to meet MAB requirements. Many banks also offer balance alerts to keep you updated.
- Make lump sum deposits:
Instead of multiple small deposits throughout the month, consider making larger deposits less frequently. This helps to boost your balance and maintain the required average more easily.
- Plan withdrawals wisely:
Spacing out withdrawals can help keep your daily balance stable, so your MAB doesn’t dip unexpectedly. Consider using credit for short-term needs to maintain your MAB when possible.
And if maintaining an MAB is still a challenge, you can open a zero balance account online. It does not require a minimum balance, allowing you to manage your finances without worrying about extra charges.
Staying informed is the key
Monthly Average Balance charges are penalties that banks apply when the average balance in your account over a month falls below a specified threshold. For instance, if your required MAB is ₹10,000 but your actual average comes out to ₹8,000, the shortfall would be ₹2,000. Banks apply a percentage-based fee or a fixed penalty based on this shortfall. The charges vary depending on the bank and account type but are often a percentage of the deficit or a flat fee. Therefore, you should enquire about the charges associated with Monthly Average Balance requirements when opening a bank account.