How is the average monthly balance calculated?

Management of your bank account entails a cost. This is why theres a need for maintaining a minimum average balance in your account. And on failing to do so, there is a penalty cha

How is the average monthly balance calculated?

Management of your bank account entails a cost. This is why theres a need for maintaining a minimum average balance in your account. And on failing to do so, there is a penalty charge involved to recover the cost for the bank to run its day-to-day business.

Banks give you the option to open a zero-balance account if it is your salary account or a basic savings bank deposit account. These accounts come with basic features and, therefore, theres no need for maintaining a minimum balance. On a regular savings account, monthly average balance (MAB) is taken into account in order to calculate interest return and penalty. Lets look at how the monthly average balance is calculated.

How is MAB calculated?

MAB is calculated by dividing the sum of the closing balance in your account of each day with the number of days in a particular month (as illustrated in the table below). Usually, the MAB requirement set by banks vary from metros to urban, semi-urban and rural branches and it ranges from Rs 1000 to Rs 10000 for a regular saving account.

Lets assume the MAB requirement of a bank is Rs 10000. Now, if the account holder was able to maintain a MAB of Rs 8964 in his/her account for the first 28 days of the month, i.e., Rs 1036 short of the required 10000 MAB, for the remaining three days, the balance will have to be at least Rs 19667 to avoid penalty charges.

Charges on non-maintenance of MAB

The MAB requirement may be higher for a priority/premium bank account. For regular savings account, the MAB charges (approx. range) by various banks are mentioned in the table below.

For a no frill account and basic savings bank deposit (BSBD), banks usually do not require any MAB. Therefore, even if there is no money in such an account, there are no charges levied.

Easy ways to maintain MAB

1) Avoid having multiple accounts, as the MAB rule is different for different banks and its often hard to keep track. Also, you would be blocking a lot of cash just to maintain the MAB in those accounts.

2) You can maintain the MAB tactfully. Say, your monthly average balancerequirement is Rs 5,000. You can either maintain that closing balance every day or have Rs 1,50000 on a single day. It means the same.

3) The MAB requirement is lower for public sector banks compared to private sector banks. So, opening an account with a private sector bank would reduce your burden.

(The writer is CEO, BankBazaar.com)

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