If you have a savings account in any bank, you must be aware of the rule regarding MAB and how to calculate Monthly Average Balance. Every bank has different monthly average balance (MAB) requirement and if you are not maintaining the MAB in your savings account, you will be penalized.
Some people even refer to this as Minimum Average Balance. Therefore, to avoid penalties, you must know thoroughly about MAB, how to calculate it, how much can your bank charge on your savings account for not maintaining MAB.
Calculation of Monthly Average Balance
Monthly average balance or MAB refers to the calculation of average of all the end-of-the day closing balance for a specific month. It is simply the sum of all the closing balance of your savings account for every day of the month divided by the number of days in the month.
If the bank’s declared MAB balance is Rs. 5000 (say), it does not mean that you have to keep a minimum balance of Rs. 5000 from the first to the last day of the month. The EOD closing balance can be lower in some days and higher in certain number of days.
You need to manage in a way that the monthly average is above RS. 5000. However, there is no harm if you are maintaining a consistent balance of Rs. 5000 every day of the month.
How do banks calculate Monthly Average Balance MAB?
As per the definition of MAB, you can easily calculate the MAB maintained in your savings account using the following simple formula.
MAB= Sum of all EOD closing balance for every day in the month/ Number of days in the month.
For instance, let’s make a table of EOD balance for an account for the month of April
Transactions affecting calculation of Monthly Average Balance
No. of days in April = 30 days
MAB= Rs. 225000/30 = Rs. 7500
If the MAB balance for the bank is Rs. 5000, you do not need to pay charges for non-maintenance of MAB even if you had days when the EOD closing balance was less than Rs. 5000.
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Common Incorrect Calculation of MAB
Most people wrongly calculate MAB in the following way:
Lowest Balance = Rs 1000
Highest Balance = Rs 25000
Average Balance = (25K+1K)/2=Rs 13000
Please note above is the wrong method to calculate Bank Monthly Average Balance.
Now, that you know about how banks’ calculate MAB, let’s look into the charges for the non-maintenance of MAB for different banks.
Charges for Non-Maintenance of MAB
State bank of India waived of the penalty for non-maintenance of required Average monthly balance. With this announcement all SB customers can now enjoy Zero balance facility in their Savings Bank Accounts.
Earlier, they had to maintain AMB of Rs 3000, Rs 2000 and Rs 1000 in Metro, Semi-Urban and Rural areas respectively. SBI used to levy a penalty of Rs 5 to Rs 15 + taxes on non-maintenance of AMB.
While the SBI has waived AMB maintenance, other bank customers need to continue to maintain the minimum monthly average balance. Here is a look at the AMC maintenance required by HDFC Bank, ICICI Bank, Punjab National Bank.
HDFC Bank is one of the most popular private banks that provides several exclusive banking services but having a requirement to maintain high MAB.
MAB for Urban region: Rs. 10,000
MAB for semi-urban region: Rs. 5,000
MAB for rural region: Rs. 2500 or FD of Rs. 10,000 for 1year 1 day.
ICICI bank offers savings account with the condition of MAB of Rs. 10000, Rs. 5000, Rs. 2000 and Rs. 1000 for metro&urban, semi-urban, rural and gramin branches respectively.
Minimum monthly average balance (MAB):
Metro and Urban locations – Rs.10,000
Semi-urban locations – Rs.5,000
Rural locations – Rs.2,000
Gramin locations – Rs.1,000
Charges for non-maintenance of minimum monthly average balance (NMMAB):
Rs. 100 + 5% of the shortfall in required MAB
Graminlocations: 5% of the shortfall in required MAB
Punjab National Bank
PNB is one of the oldest banks in India bearing savings account of millions of common people. PNB follows Quarterly Average Balance (QAB) instead of MAB.
The QAB and penalty for non-maintenance of QAB is different for type of savings account and is also based on the type of location.
How to avoid Penalty charges for inability to maintain MAB?
Tips for avoiding charges for not maintaining MAB:
- Choose bank with lower MAB/QAB
Different banks have different MAB/QAB. It is better to open your saving account in a public bank than a private bank. Yes, you may have to sacrifice some exclusive facilities of private banks but as public banks usually have lower MAB/QAB, you do not need to worry about penalty.
- Choose location carefully
As clear from the discussion of the previous section, banks provide lower MAB/QAB for rural area. Similarly, the MAB/QAB of the same bank in semi-urban area is lesser than that in metro cities. If you have access to semi-urban or rural banks, you can choose to open your savings account in those branches to get the comfort of lower MAB/QAB.
- Monitor MAB/charges through Net Banking
If you have been charged for non-maintenance of MAB/QAB or you fear that, the best solution to get rid of this stress is checking out your balance and calculate MAB/QAB on online platform. Almost every bank has their official online portal or mobile app and you can get access to your savings account just by availing those facilities. A regular monitoring of EOD closing balance can help you to avoid penalty for not maintaining MAB/QAB.
- Check the date range for the monthly calculation
Every bank has their own monthly cycle. For instance, a bank may have a cycle of 5th of previous month to 5th of next month. Understanding the monthly cycle that your bank uses for calculation of MAB/QAB keeps you one step ahead when it comes to maintaining MAB/QAB.
- Avoid multiple accounts
Most people hold multiple savings accounts in multiple banks; all banks having different MAB/QAB. It can be difficult to track down your MAB/QAB for each and every account leading to more default in maintaining MAB/QAB. In order to avoid penalties and making life simpler, it is better to avoid multiple accounts.
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Non-maintenance of Monthly Average Balance/Quarterly Average Balance is a common reason that has led to penalty for common people. As MAB/QAB varies from region to region, bank to bank, you must be aware of the MAB/QAB in your bank.
This way you can ensure that you are not charged with penalty on your saving accounts for the shortfall in maintaining MAB/QAB.
Hope the above calculation of Monthly Average Balance was useful to you. Do ask your doubts in Comments below.