How Monthly Average Balance on your savings bank account works?

As you might know, maintaining your bank account comes with a cost. This is the reason that you need to maintain a minimum average balance (MAB) in your bank account. Failing to do so invites a penalty charge, which is to recover the cost for the bank to run its day-to-day operations. You can have a zero balance savings account, wherein, you are not required to maintain a MAB. Even the corporate savings accounts are zero-balance savings account with no requirement of maintaining the MAB. However, these accounts come with basic banking features and do have more transaction limits and charges when compared with regular savings bank account. Hence, you might need to have a regular savings account. In such an account, MAB is taken into consideration to calculate interests and penalties.

Let us understand how the MAB is calculated. The MAB is calculated by dividing the sum of the daily closing balance on your account by the number of days in a particular month. Usually, the MAB requirement is anywhere between Rs 1,000 to Rs 10,000 on a regular savings bank account. This is decided by the banks depending upon the region, where you stay. To understand it better let us take an example. Let us assume that the MAB requirement is Rs 10,000.

Your MAB would be the total of the daily closing balance, that is, Rs 2,96,000, divided by the total number of days (31), which comes to Rs 9,548.39, effectively. So, in this illustration, you were not able to maintain Rs 10,000 MAB.

To be able to maintain the minimum MAB, you need to avoid having too many savings bank accounts. Else, most of the cash would get parked in them just to maintain the minimum MAB requirement, which is unproductive. You can even avoid the penalty either by not withdrawing more than the minimum MAB required or by having a closing balance (on a single day) of the MAB required multiplied by the number of days in a month.