How to Calculate Your Monthly Average Balance Accurately?

by Bunty Goswami

When you have Savings Accounts,  there’s a chance that your bank will tell you to maintain a Monthly Average Balance (MAB) to avoid penalties.

Calculating your MAB rightly and accurately is important for effectively managing your finances and bypassing any penalties or fees imposed by your bank.  It is a critical metric that determines different aspects of your banking experience, such as minimum balance requirements, fee waivers, and eligibility for certain benefits or perks.

But what is MAB? Let's learn more about it in detail in this article.

What is MAB?

Unless you have a Zero-Balance Savings Account, your bank requires you to maintain a minimum average balance in your account monthly.

MAB is the minimum amount of money the account bearer must maintain in their Savings Account monthly to avoid being penalized by a financial institution.

A common misconception regarding MAB is that the average balance for an account is the minimum account balance that can ever be reached. For instance, if the average monthly balance is Rs 5,000, most account holders believe that Rs 5,000 must always remain in their account. However, this is different from how it works.

So how is MAB calculated? Let's find out.

How is MAB Calculated?

The end-of-day/daily closing balances in Savings Accounts are tallied over a given month to determine MAB at most banks, including the ICICI Bank. 

MAB = The total daily closing balances divided by the number of days in the month

Therefore, MAB will be computed using two variables:

  • Calculating the total aggregate of monthly closing balances
  • The number of days in a month

Consider an example to illustrate this point.

  • An individual opened a Savings Account. The bank demanded that they must maintain an average monthly balance of Rs 10,000.
  • Let us assume the individual’s account contained Rs 45,000 on July 1.
  • They withdrew Rs 20,000 on July 5 to cover business expenses. Rs 15,000 was deducted from their account on July 10.
  • On July 15, Rs 10,000 were deposited into their account. Another Rs 5,000 was added to their account on July 29.

Consequently, the individual’s MAB will be:
 

Days

Total days (A)

Amount in the account at the end of the day (B)

A x B

First 4 days

4

Rs 45,000

1,80,000

5th to 9th day

5

Rs 25,000

1,25,000

10th to 14th day

5

Rs 10,000

50,000

15th to 28th day

14

Rs 20,000

2,80,000

29th to 30th day

2

Rs 25,000

50,000

The MAB using the above-mentioned formula comes out to be:

= Rs (1,80,000 + 1,25,000 + 50,000 + 2,80,000 + 50,000) / 31

= Rs 6,85,000 / 31

= Rs 22,096.8

The penalty for failing to maintain a Monthly Average Balance varies by financial institution. The fees for not maintaining your average balance depend on your location, the type of Savings Accounts you have, and the bank where you have an account.

Guidelines for Maintaining a Good MAB

It is easy to maintain the MAB in your account if you bear in mind the following points:

Always check requirements

You should think carefully about your alternatives before opening Savings Accounts. Examine the differences and similarities between zero-balance and minimum average balance accounts. Assess whether the latter's additional features are worth the slack that must be kept.

Most banks offer numerous perks and discounts on their accounts, making it beneficial for customers to open an account. Opening a Savings Account in such intuitions is always considered beneficial, even with the tiny hassle of maintaining MAB.

Avoid opening many accounts

You only need to consider the monthly balance requirements for one account by administering only one account. Using this method, keeping track of multiple accounts will not be a hassle. Rather than complying with rules for each account, you can readily access your funds through a single account.

Make deposits in a lump sum

If your account's monthly average is set to Rs 5,000, you can maintain a closing day balance of Rs 20,000 for approximately 8 days to increase the account's average balance.

These effective strategies can help account bearers maintain a healthy MAB in their accounts. Keep in mind that you can also utilise MAB calculators, which are freely accessible by various banks on their websites.

Why do Banks Enforce MAB?

Banks use MAB to determine the account holder's income stability. Inconsistent maintenance of the monthly balance may suggest that the account holder has an irregular source of income or a volatile spending pattern. It has an effect on the credit score, which in turn impacts the customer's loan prospects.

Additionally, banks utilise the funds deposited by account holders for various purposes. By requiring account bearers to maintain a minimum balance, the bank ensures that a considerable amount of cash is always available for use in various investment opportunities.

What is the Penalty for Maintaining a Minimum Balance?

Since MAB varies from one financial institution to the next, so do the fees assessed for failing to meet that minimum. Living in a metropolitan or semi-urban area will also increase your MAB and penalty fees. The minimum account balance can be between Rs 5000 to Rs 10,000, while the penalty may be between Rs 100 and Rs 350 per month.

Conclusion

Maintaining a Monthly Average Balance in your Savings Account may be a hassle, but it comes with numerous perks.  In the long term, these perks can outweigh the trouble you must go through to maintain a minimum balance.

So do you want to enjoy perks like heavy discounts on shopping platforms, malls, and restaurants? Open your Savings Account today and benefit from such perks every month.

 

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