MAB or monthly average balance is the minimum amount your bank account must have on average at any point in the month.
If you fail to maintain this minimum balance in your account, you may end up paying penalties to the bank! This is why monthly average balance is an important feature for all bank account holders to understand.
Here’s an all-in-one guide to understanding MAB to help you understand the concept as best possible.
What is Monthly Average Balance?
The monthly average balance is the minimum amount of money that the account holder has to maintain in their current account or savings account. This is the least bank balance that you need to have in your account each month to avoid being penalised by the bank.
Important note: Monthly Average Balance is calculated as an average value. This means that you need to ensure that your account balance should average out to the MAB at the end of the month.
If the MAB for your bank account is Rs 5,000, you can either choose to keep Rs 5,000 as an everyday balance or Rs 1.5 lakh (Rs 5,000 x 30 no. of days) on just one day in the month. Ultimately, the average for the month needs to total Rs 5,000.
How to Calculate Monthly Average Balance?
Banks use two figures to calculate this:
- Total of the closing balances in a month
- Number of days in the month.
The formula is:
MAB = (Sum of closing balances) / (Number of days in month)
MAB is calculated by dividing the sum of all closing balances for the month by the number of the days in that month.
Let’s look at an example to understand this. These were the closing balances in Rahul’s current account for the month of April.
|Days||Total days (A)||Amount in the account at end of the day (B)||A x B|
|First 4 days||4||Rs 25,000||1,00,000|
|5th to 9th day||5||Rs 15,000||75,000|
|10th to 14th day||5||Rs 5,000||25,000|
|15th to 28th day||14||Rs 10,000||1,40,000|
|29th to 30th day||2||Rs 20,000||40,000|
Using the formula, monthly average balance comes out to be:
= (1,00,000 + 75000 + 25000 + 1,40,000 + 40,000) / 30
= 3,80,000 / 30
= Rs 12,666.66
Hence, Rahul’s monthly average balance is above the mandated Rs 10,000 and he will not be charged any penalty.
Why do banks enforce Minimum Average Balance requirement?
You may be wondering why this minimum balance requirement even exists – it sounds very much like a tool to control and penalise account holders. But there are solid reasons for the existence of the Monthly Average Balance. Here’s a video explainer for you!
Tips on Maintaining Monthly Average Balance
While the entire concept of average balance is rather simple, here are some ways in which you can optimise your monthly average balance maintenance and ensure a smooth ride with your bank.
1. Know Your Requirements
Weigh your options before you apply for any bank account. Compare the features of zero balance accounts with accounts that have a minimum average balance requirement.
Read more: A Guide to Types of Current Accounts
2. Avoid Multiple Bank Accounts
Avoid multiple bank accounts. This can make it hard to track the MAB requirement norms of each bank and comply with them each month. If you’re a business owner, it’s best to open one single current account that serves all your needs.
3. Use Credit to Your Benefit
If you are a business owner, use a corporate credit card for business expenses wherever possible. This way, you don’t have to worry about your MAB at all. Instead, keep an eye on your credit limit and expenses.
If you are an individual with a savings account, try this approach with your personal credit card!
4. Budget and Plan
This one goes without saying – make sure your expenses are optimised, and you’re accounting for every rupee that goes out of your account! Saving money wherever possible will help you maintain a higher average balance in your account.
Penalties for Non-Maintenance of Monthly Average Balance
Since the monthly average balance requirement differs from bank to bank, the penalty charges are also different for each bank. Here’s a look into what non-maintenance penalties look like for accountholders in India’s top banks.
|Name of Bank||Account Type||Non Maintenance Penalty|
|ICICI Bank||Regular Savings Account||6% of the shortfall in required MAB or Rs 500 whichever is lower|
|Current Accounts||Rs 750 – Rs 3,000, depending on type of Current Account|
|HDFC Bank||Regular Savings Account||6% of the shortfall from the average balance requirement or Rs 600 whichever is lower|
|Regular Current Account||Rs 1,500|
|State Bank of India||Current Accounts||Rs 500 – Rs 8,000, depending on type of Current Account|
Zero Balance Bank Accounts
If the concept of a minimum balance sounds too daunting for you, don’t worry.
Banks also offer zero balance bank accounts which don’t have an MAB – meaning accountholders can maintain nil balance in their accounts without incurring penalties.
Read more: Zero Balance Accounts – An Explainer
Having to maintain a minimum balance makes it important to select the right kind of current account. The ideal current account is a one-stop-shop, providing your business with solutions to every financial problem you might face.
With RazorpayX Payroll, businesses can automate salary payments and provide insurance policies to their employees. Your business is the future; make sure your banking is, too!
What is monthly average balance?
Monthly Average Balance is the minimum amount of funds that account holders must maintain to avoid being penalized by the bank.
Do I need to maintain the MAB every day in a month?
No. Since the daily closing balance is averaged out, the account holder may have more funds than MAB on some days that can make up for the shortfall on some days.
Where can I check the monthly average balance requirement for my account?
Account holders can opt for mobile banking, internet banking, or call the customer care center of their bank to know about the MAB requirement.
How is monthly average balance calculated by my bank?
Banks use the formula: MAB = (total of end of the day closing balances) / (number of days in one month) to calculate the MAB of an account holder.