What is Monthly Average Balance & How to Calculate It

• The Monthly Average Balance (MAB) is the minimum balance that you are required to maintain in your savings account.
• Add the daily closing balances and divide the total by the number of days in the month to find the MAB.
• Non-maintenance of MAB attracts penalties, withdrawal of certain services, etc.
• MAB can be maintained by managing your finances effectively, owning limited accounts, depositing more, etc.

When you open a savings account with a bank or a post office, there might be a requirement to maintain a minimum amount in the account. This is referred to as the Monthly Average Balance.
For those who are new to banking or looking to handle their finances efficiently, knowing what is the Monthly Average Balance and its importance is crucial.This article will not only explain the MAB's full form in banking but also its role, method of calculation, and other necessary aspects.

The Monthly Average Balance (MAB) is the minimum balance that you should maintain in your savings account every month. It is the average of the total cash balance in the account during the month.Banks often have MAB limits to help you maintain a certain minimum balance. However, if you fail to keep the required MAB, you will be liable for a fine or a charge.

Computation of the Monthly Average Balance includes adding up the daily closing balance in your account and then dividing the amount by the number of days for that given month. Here is the formula:

MAB Calculation

Here's a look at the step-by-step calculation of MAB:

• Record the Daily Balances : Note the final closing amount in your savings account for every day of the month.
• Sum up the Balances : Add up all the closing balances of each day.
• Divide by Number of Days: Divide the total by the number of days in the given month which can be 28, 30, or 31.

Here's a quick example to explain the calculation:

Let's consider the following daily balances for a 30-day month:

• Step 1 : Addition of the total day-end balances = ₹10,000 + ₹5,000 + ₹15,000 = ₹30,000
• Step 2 : Division by the number of days = ₹30,000 / 30 days

As per the calculation, the Monthly Average Balance will be ₹1,000/day. Also Read : Find out if you can save tax by transferring money to your wife's account

Maintaining the required MAB is important for the following reasons:

• Avoids Penalties : Non-maintenance of the MAB results in charge which adds to your overall expenses. You can avoid that by maintaining the MAB.
• Makes You Eligible for Premium Services : Besides the basic services, many banks provide premium services if you maintain the MAB, such as higher withdrawal limits, or a higher interest rate on the account.
• Fosters Financially Responsible Behaviour: With the MAB requirement, you can maintain a minimum balance in your account that can help avoid overspending.
• Helps in Getting Loans on Favourable Terms : If you regularly maintain the MAB, you may be considered a financially responsible borrower if you apply for a loan in the future.
• Extends Banking Relationship : If you maintain the MAB regularly and operate your account responsibly, you create a good relationship with the bank. This can lead you to get better banking offers and services.

The charges for MAB differ across banks. Private-sector banks usually charge higher rates than their public-sector counterparts. The charges for non-maintenance of MAB are contingent on the type of savings account, location in use, and the bank's pricing policies.Some lenders also determine the rates on your financial behaviour. If you consistently fail in maintaining the MAB, the charges increase.

Maintaining the MAB is a simple task, contrary to popular belief. Here are a few simple tips that can help you maintain the minimum balance:

Don't Open Multiple Accounts

The difficulty of maintaining the MAB across multiple accounts can be a hassle. This is why a single account is preferred. It eliminates the need to keep track of different accounts. Also, you can tap into your funds more easily without having to resort to MAB restrictions.

Intelligent Withdrawal of Money

Try and withdraw amounts that exceed the MAB. If you are in a financial crunch and withdraw more, try and replenish your account before the end of the month to meet the MAB requirement.

Timing Your Transactions

The MAB is calculated after the end of the month. As such, you can let the balance fall below the MAB during the month without incurring any penalty. Just try and deposit additional amounts towards the month end so that the MAB is met. Also, avoid big transactions at month-end.

Track Your Account

A regular review of your savings account and its transactions is essential to ensure that the MAB is maintained. Try and check your account statements weekly to deposit funds if the balance is falling low. Also Read : Find out the different types of bank accounts

Understanding what is Monthly Average Balance and its calculation can not only help you control your spending, but also exempt you from paying added charges. Check the MAB requirements of the account that you use and maintain it at all times.You can also choose an account which does not have any MAB requirements for easier transactions. Whatever you do, manage your accounts well for efficient financial planning.