Monthly Average Balance: How MAB is calculated by banks; 3 smart ways to maintain it
Management of your bank account entails a cost. This is why there’s a need for maintaining a minimum average balance in an 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, there’s 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. Let’s 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.
Let’s 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.