What is a Monthly Average Balance (MAB)?
The average monthly balance means the average amount you are required to maintain in your savings or current account for a full calendar month. The amount of MAB varies based on the type of account you choose. The bank at the end of the month checks the account & calculates the monthly average balance. A penalty may be applied if the required balance is not maintained.
A few banks offer zero balance accounts. Such accounts are for customers who find it hard to keep a balance or want to avoid extra fees. The downfall of these accounts is that they often come with fewer features compared to accounts that need a minimum balance.
How is Monthly Average Balance (MAB) Calculated?
How to calculate monthly average balance? This is worked out by taking the average of your daily closing balance for the entire month. Here is a simple breakdown:
1. Record your account balance at the end of each day.
2. Add all the daily closing balances together.
3. Divide the total by the number of days in that particular month.
Example of Monthly Average Balance (MAB)
Here’s a sample case to understand how the Monthly Average Balance or MAB is worked out:
Day | Closing Balance (₹) |
Day 1 | 5,500 |
Day 2 | 5,100 |
Day 3 | -- |
... | -- |
Day 30 | 5,400 |
The total is –₹1,62,000 (this is the assumed amount).
Monthly Average Balance (MAB) = Total of daily closing balances ÷ Number of days
According to the above monthly average balance formula,
₹1,62,000 ÷ 30 = ₹5,400
Thus, the MAB for that month comes to ₹5,400.
Note - For months where there are 31 days, you need to divide by 31 instead.
Charges Imposed for Not Maintaining Required MAB
Failure to maintain the required Monthly Average Balance (MAB) can result in penalty charges. The charges may start from ₹25 unless you hold a zero-balance account.
Suppose the Monthly Average Balance for a savings account is at ₹1000. Suppose the balance is not maintained. In that case, a penalty of ₹25 is charged when the MAB falls below ₹1,000 but stays at or above ₹500.
The penalty rises to ₹50 if the MAB drops below ₹500. It is best to review the Savings Account fees & charges for complete details.
Also Read:How to Check Loan Account Number (LAN)?
Importance of Maintaining Monthly Average Balance (MAB)
There are several reasons why it is important to maintain the required Monthly Average Balanceor MAB.
1. Not meeting the MAB results in penalty charges; this may reduce the money in your account.
2. Keeping up with MAB shows financial discipline – something that improves your profile when applying for loans or credit cards.
3. Maintaining the required MAB helps you get access to added banking benefits such as free cheque books alongside better interest rate terms.
Benefits of Maintaining Monthly Average Balance (MAB)
Eager to know the benefits of keeping the required Monthly Average Balance? Here are the advantages of maintaining the MAB.
1. You can avoid monthly maintenance fees by maintaining the required account balance.
2. Consistently meeting the MAB helps build stronger creditworthiness with banks as well as financial institutions.
3. Banks often offer added benefits apart from special discount offers to customers who maintain the minimum required balance.
Why should you maintain Monthly Average Balance (MAB)?
Keeping a minimum MAB not only helps you avoid penalties. It supports better financial well-being while strengthening your relationship with the bank. You can maintain a minimum balance for these specific reasons.
1. Opportunities to Earn Higher Interest
Banks offer interest on the money held in your savings account. The larger your balance, the higher the interest you can earn. The rate of interest may differ from one bank to another.
2. Improves Financial Habits
Maintaining the minimum balance keeps you away from unnecessary withdrawals. At the same time, it can promote a savings habit. It lets you monitor your spending while following a financial plan. Besides, it helps you grow a habit of investing gradually.
3. Get Exclusive Offers
A higher account balance often comes with perks such as reward points as well as lifestyle benefits. You may also be eligible for instant personal loans at lower personal loan interest rates & discounts on other banking products.
4. Protects Your Credit Score
Failing to repay on time can impact your credit score negatively when you have loans or debts. Keeping a minimum balance ensures repayment on time while maintaining the credit accordingly.
Tips to maintain Monthly Average Balance (MAB)
Follow these simple tips to maintain your MAB successfully:
1. Choose the Right Account - Select an account that suits your spending while saving habits while requiring a lower minimum balance.
2. Set Up Automatic Transfers - Use standing instructions to transfer funds from other accounts on a schedule. This ensures your MAB is always maintained.
3. Keeping Track of Your Expenses -Monitoring your spending habits ensures your balance does not fall below the required minimum.
4. Regularly Check Statements - Review your account statements periodically alongside make any adjustments needed to maintain your minimum balance comfortably.
Conclusion
So now you know what is monthly average balance. You also know that maintaining a minimum monthly average balance is more than avoiding penalties. It helps you earn better interest while giving access to exclusive benefits. You can stay financially disciplined & protect your credit score accordingly. So, follow these tips and monitor your account only to ensure better financial health.
Frequently Asked Questions (FAQs)
Q.1. Why do banks require a monthly average balance?
Banks require a monthly average balance to ensure account holders maintain a minimum level of funds. This helps banks manage liquidity and operational costs. It also encourages account holders to save regularly. Maintaining the required MAB ensures seamless banking operations. It may let customers access different benefits connected to their account.
Q.2. Can I get alerts to monitor my monthly average balance?
Most banks offer alerts through text message or email to help you monitor your monthly average balance. These notifications inform you whether your balance is nearing the minimum requirement. Alerts can help you avoid extra charges while ensuring that your account stays in decent condition.
Q.3. How can I calculate my monthly average balance?
Add the closing balance of your account for each day of the month to calculate your monthly average balance. Then, you need to divide the total by the number of days in that month. This average determines if you meet the bank’s MAB need.
Q.4. Does an overdraft impact my monthly average balance?
Using an overdraft can affect your monthly average balance. The overdraft may reduce your MAB & result in penalties if your account goes below the minimum required balance. You must monitor overdraft usage and, at the same time, ensure that sufficient funds are available to meet the minimum balance requirements of the bank.
Q.5. What happens if I don’t maintain the required MAB?
Banks may charge additional fees when you fail to maintain the required monthly average balance. No maintenance of the account can impact your banking privileges (and, in certain cases, your eligibility). Maintaining the minimum balance helps you avoid these issues while also promoting savings.
Q.6. Are there benefits to keeping a high monthly average balance?
You should keep a higher monthly average balance. This can be beneficial as you get better interest earnings. You can also expect to get lower interest rates on loans. Besides improving your banking relationship, it supports financial well-being.
Q.7. What does MAB stand for?
MAB stands for Monthly Average Balance. It is the average amount of money you need to maintain in your bank account over a month. Meeting the MAB requirement helps you avoid penalties, earn interest, and access banking benefits while encouraging better financial habits & account management.
