Average Monthly Balance: What is it? How is it Calculated?

• The average monthly balance is the minimum amount that you should maintain in your bank account.
• This amount varies from bank to bank and depends on the account type.
• If your average balance is less than the minimum balance requirement, banks levy non-maintenance charges.
• To keep your account balance stable, track your balance across all accounts and cut down on unnecessary spending.

The average monthly balance is a common banking terminology that you might have come across frequently. Complying with its requirements is important to avoid a levy of charges.In this blog, we will talk about the average monthly balance in detail and answer some pertinent questions like ‘What is average monthly balance?’, ‘What is the calculation process?’, and many others.

The average monthly balance is also known as the minimum balance and refers to the minimum amount that you should keep in your bank account. If your account balance falls below this amount, banks levy non-maintenance charges.You should know that the average monthly balance varies from bank to bank and depends on the account type. Thus, you must talk to your bank to understand the relevant requirements. Also Read: How to Open a Savings Account Online & Offline: Step-by-Step Process

Now that you have understood ‘What is average monthly balance?’, let’s look at its calculation process, which is simple and easy to understand.Here is how a bank generally derives the average balance:

• A bank calculates the total of daily closing balances in a month.
• It then divides the total by the number of days in the month.
• This gives the average monthly balance of your account.

If your average balance is less than the balance requirements, it attracts non-maintenance charges. Example : Let’s find out what is average monthly balance and if it will attract non-maintenance charges with an example where the average balance requirement is ₹10,000.

The total of the daily closing balance is ₹405,000. Dividing the total with the number of days i.e. 30, returns the average balance of ₹13,500.Since this is more than the bank’s requirement of ₹10,000, the minimum balance requirement is complete, and the bank will not levy any charges.

After having addressed the two most common questions i.e. ‘What is average monthly balance?’ and ‘How is it calculated?’, we will now find out what are the benefits of average monthly balance:

• Better Financial Control: When you know that it is mandatory to maintain funds in your bank account, you prioritise your expenses better. This helps to cut down unnecessary spending to a certain extent.
• Financial Cushion: A higher bank balance serves as a financial cushion during emergencies. You can fall back upon this cushion during emergencies or unforeseen circumstances.
• Higher Interest Earned: The higher the balance in your savings account, the higher the potential to earn more interest. A higher interest potential like this serves as an incentive to save and set aside funds to meet financial goals.

We started the blog with the question 'What is average monthly balance?' and will end it by sharing a few tips that can help you maintain an average monthly balance.Here are the simple yet effective tips:

• Avoid Multiple Accounts: You need to fulfil the minimum balance requirement for every account. Having multiple accounts may make it difficult to track and maintain the required balance across accounts. Thus, open only those accounts that you need.
• Plan Your Transactions: It is wise to plan your deposits and withdrawals so that your account balance remains stable and doesn’t fall too low on any given date. This way, you can ensure the minimum balance requirement is met.
• Track Your Balance: You can check your bank balance conveniently through your mobile or net banking account. Track your balance to ensure it meets the minimum balance requirements.

Also Read: Different Types of Bank Accounts In India

Hope we have answered most of the questions that were at the top of your mind like - ‘What is average monthly balance?’, 'What is the need for an average monthly balance?', ‘How can I meet the minimum balance requirements?’, etc.Remember to track your balance across accounts and maintain the required balance in every account. Also, exercise financial discipline and cut down on unnecessary spending to keep the balances stable.In case you need urgent funds and further withdrawals may affect your bank balance, consider managing your expenses with a credit card. Gain easy access to credit, keeping your bank balance intact.Don’t have a credit card yet? Apply today!