From this financial year, Monthly Average Balance (MAB) has been a hot topic as some banks have issued important guidelines regarding MAB for savings account holders. Here we will discuss all about MAB and how to calculate Monthly Average Balance.
So what exactly is monthly average balance?
MAB has a common myth involved that it is assumed to be the minimum stipulated balance one needs to maintain all the time in the saving bank account. It is not so, MAB is a concept linked to average. It is actually the average of the daily balances at the end of each day which is calculated by adding up the daily closing balances of the month and then dividing by total number of days in that particular month. In this calculation the total number of days is calculated, including holidays.
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Monthly average balance calculation made easy
The daily closing balance of a person’s savings bank account makes the End of Day balance (EOD). Now, MAB is calculated by adding up all the EOD balances of the month and then dividing the sum with total number of days in the concerned month.
For example: Let us assume that Mr. Patil has Rs 5,000 on 1st June, 2017. Then he deposits Rs 15,000 on 6th June and withdraws Rs 10,000 on 21st June. Then he again deposits Rs 20,000 on 26th June. The MAB calculations are given below:
- June 1 to June 5 (5 days): EOD balance is Rs 5,000
- June 6 to June 20 (15 days): EOD balance is Rs 20,000
- June 21 to June 25 (5 days): EOD balance is Rs 10,000
- June 26 to June 30 (5 days): EOD balance is 30,000
The total of all the EOD balances for the month comes out to be 5,000*5 + 20,000*15 + 10,000*5 + 30,000*5 = 515,000. Total number of days in June is 30.
MAB = 515,000/ 30 = Rs 17,166.6667
Penalty for non maintenance of MAB
The charges for not maintaining MAB, differs from one bank to another. SBI had recently announced its new MAB requirements for all savings bank accounts except PMJDY (Pradhan Mantri Jhan Dhan Yojana) accounts and basic savings deposit accounts, according to which the account holders need to maintain an MAB of Rs 1,000, 2,000, 3,000 and 5,000 in rural, semi urban, urban and metro area, respectively (depending upon to the demographic location of the branch).
The penalty for maintaining less MAB in the account also varies as per the shortage (in amount) for maintaining the minimum average balance requirement. In case of metro, urban and semi urban cities, the penalty may range from Rs 50 to Rs 100 plus service taxes, depending upon the amount of shortfall and in rural area; it ranges between Rs 20 and Rs 50 plus service tax, again depending upon the amount of shortfall.
Monthly Average Balance and Quarterly Average Balance
Unlike SBI, many banks adopt QAB (Quarterly Average Balance) criteria for minimum balance requirements. It gives leverage in terms of time to the customers. The time under consideration is more than MAB and if one has committed a default it is easier to take care of such incident. The calculations of QAB are done the same way as that of MAB.
Tips on How to Maintain Monthly Average Balance
- Know your minimum balance requirements: One needs to be aware of the minimum balance requirement as well as the criteria to be followed i.e. MAB or QAB
- Opt for PSU banks: Public sector banks have lower minimum balance requirements than private banks. Apart from this, the penalty is also lesser than private sector banks.
- Know the date range period: The calculations may not essentially be done as per calendar. There may bank’s own criteria for this.
- Opt for alerts: Get option to receive instant alerts via SMS and email whenever there is any change in MAB requirements.