At the end of each month, the bank calculates whether you’ve met the required MAB, and if you haven’t, penalties may be imposed.
The Monthly Average Balance (MAB) is the average amount you need to maintain in your savings or current account over a calendar month. Unlike a minimum daily balance, MAB is calculated based on the average of your daily closing balances throughout the month. At the end of each month, the bank calculates whether you’ve met the required MAB, and if you haven’t, penalties may be imposed. MAB is a monthly financial checkpoint that helps you stay on track in your financial journey.
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Why is Maintaining MAB Important?
Maintaining the required MAB is crucial for several reasons
1. Bank Operations and Services: Banks rely on the MAB to manage their funds efficiently. The money you keep in your account is used by the bank to extend credit to borrowers and invest in financial instruments like mutual funds and securities. This not only helps maintain the bank’s stability but also contributes to the broader economic stability, indirectly safeguarding your deposits and investments.
2. Avoiding Penalties: Failing to maintain the MAB can lead to penalties, which could range from monthly maintenance fees to, in some cases, account closure. By ensuring your account balance stays above the MAB, you avoid these unnecessary charges.
3. Creditworthiness: Your MAB is a reflection of your financial stability and responsibility. Consistently maintaining the required balance demonstrates your ability to manage finances, which is beneficial when applying for loans or credit cards. Banks often assess your account’s MAB to gauge your financial discipline.
4. Access to Banking Privileges: Meeting the MAB requirement often comes with additional banking benefits. These can include preferential interest rates, and discounts on various financial products. Banks use MAB as a criterion to reward loyal and responsible customers with these perks.
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How is Monthly Average Balance Calculated?
Example: Let’s assume your bank requires an MAB of INR 10,000. Here’s how it works:
Daily Balances: Your account balances over a 31-day month might look like this:
- Day 1: INR 11,000
- Day 2: INR 10,500
- Day 3: INR 9,800
- Day 4: INR 10,200
- Day 31: INR 10,500
- Total Balance: Add all the daily balances together.
Total Balance = Rs 321,000
Calculate MAB: Divide the total balance by the number of days in month:
MAB = 321000/31 = Rs 10,355.48
In this case, you’ve successfully maintained the required MAB.
Minimum Average Balance Requirements
MAB requirements vary across banks and depend on the type of account you hold. To avoid penalties and enjoy banking benefits, it’s essential to understand your bank’s specific MAB requirements. If your account balance falls below the required MAB at any point during the month, you may incur fees or lose certain privileges.
Tips for Managing Your MAB
Monitor Your Account: Regularly check your account balance to ensure it remains above the required MAB.
Automate Savings: Set up automatic transfers to your savings account to consistently maintain your MAB.
Budget Wisely: Create a budget to manage expenses and allocate funds for maintaining your MAB.
Adhil Shetty, CEO of Bankbazaar.com, says,“Select a bank account that aligns with your financial habits and goals to make it easier to maintain the required balance. Maintaining a healthy Monthly Average Balance is not just a banking requirement; it’s a smart financial strategy. By adhering to MAB requirements and managing your account wisely, you can avoid penalties, enjoy a range of banking benefits, and enhance your financial stability.”
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It is important to remember that your MAB plays a crucial role in your creditworthiness and overall financial health, making it an essential component of responsible financial management.
