Both public and private sector banks penalize customers for non-maintenance of average monthly balance in savings accounts. Many savings bank account holders often confuse this average monthly balance or monthly average balance (MAB) to the minimum balance they must have in their saving bank accounts at all times.
c and how banks calculate it to help you avoid any unnecessary charges for non maintenance.
Understanding Monthly Average Balance (MAB)
Banks as part of their service to savings bank account holders insist on maintaining a minimum monthly average balance. This helps banks to ensure they have enough liquidity at hand to support their day to day banking facilities on offer. The minimum MAB limit may range from Rs. 1,000 and can go as high Rs. 10,000 depending on the bank and the region.
A monthly average balance or MAB is the sum total of the amount of money in the bank account at the end of each day of the month divided by number of days of the month. In case you fail to maintain the same, it can result in penalties, which helps banks in recovering costs for their day-to-day activities.
How Banks Calculate Your MAB
The amount of money in your bank account at the end of each day is taken as the closing balance. The sum total of closing balance for each day of the month is then divided by the number of days in that month to reach the MAB amount. All working days and bank holidays are included when calculating the number of days in the month.
Let us understand this better with an example. Your bank requires you to maintain a MAB of Rs. 5,000 per month. On the first day of a month, you have a balance of Rs. 7,000 in your savings bank account and you withdraw Rs. 3000 on the fifth of the month. If you deposit Rs. 10,000 on the 20th of the month, here is you’re your MAB calculations will be made.
- for August 1 to August 4: 7000 (EOD for each day) * 4 = Rs. 28,000
- from August 5 to August 19: Rs. 4000 (EOD for each day)* 15 = Rs. 60,000
- from August 20 to August 31: Rs. 14,000 (EOD for each day) * 12 = Rs. 168,000
- MAB = Rs. 28,000 +Rs. 60,000 + Rs. 168,000 / 31 (number of days of the month of August)
- MAB = Rs. 256,000/31 = Rs. 8258.06
Since MAB is above the minimum stipulated limit of Rs. 5000, no fines would be levied for the account holder of MAB maintenance.
Penalty You Will Have To Pay For Not Maintaining MAB
RBI regulations allow banks to fix penalties for non maintenance of MAB as per their own financial outlook. One of the country’s prominent bank has recently revised its MAB charges with effect from April 01, 2018. It now charges Rs. 15 per month for non-maintenance of MAB in metro and urban centers. The bank charges Rs. 12 for MAB for semi-urban and rural centers.
For those unable to maintain the bank MAB, banks allow for a zero balance account option which is a basic savings bank account with limited options. Accounts under PM Jan Dhan scheme are also designated as zero balance accounts with no MAB requirements.
Before opening a bank account, it would be wise to have a clarity about bank’s MAB requirements. The dates for calculating MAB may vary from bank to bank and so it is better to be aware about the starting and end dates for MAB calculations to avoid unnecessary penal charges. Also in today’s day and age of technology and internet, opt for SMS alters on your phone so that you are aware whenever your bank account balance dips below the threshold limit.
The writer is CEO, BankBazaar.
BankBazaar.com is a leading online marketplace in India that helps consumers compare and apply for credit card, personal loan, home loan, car loan, and insurance.