What is Monthly Average Balance?

The monthly average balance is the average closing balance in a bank account, calculated over one month. It is calculated by dividing the sum of all closing balance over one month by the number of days in that month. 

Robust current accounts like RazorpayX Business Banking+ powered current accounts require businesses to maintain a monthly average balance to continue providing industry-first solutions to the unique financial needs of businesses.

RazorpayX Business Banking+ offers more than just banking; it is a centralized dashboard for everything from vendor management to payroll, enhanced with automation at all points.

How to Calculate Monthly Average Balance?

Monthly average balance is calculated with the average of all the closing balances in your account over a month, and dividing it by the number of days in a 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!

 

 

Check out RazorpayX Business Banking+

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.

5. Focus on cashflow management

Well-managed cash flow will ensure your business always has a surplus of cash to maintain the minimum balance requirement. An important part of managing cash flow well is making your business payments on time and managing your budget well.

With RazorpayX Business Banking+, you can automate budgeting, vendor payments, payroll, general payouts, and so much more, making business finances so much easier to manage.

Check out RazorpayX Business Banking+

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

Benefits of Maintaining Monthly Average Balance

Maintaining a monthly average balance (MAB) in your account can offer several advantages:

Financial Discipline: The requirement to keep a minimum average balance can nudge you to be more mindful of your spending. You’re less likely to make unnecessary withdrawals if you know it might affect your MAB and trigger penalties. Over time, this can lead to better budgeting habits and potentially increased savings.

Earning Potential: Some banks offer higher interest rates on savings accounts with a maintained MAB. This means you earn more money on the funds you keep in the account.

Access to Perks: Many banks reward customers who maintain a good MAB with benefits like free ATM transactions, waived monthly maintenance charges, or even cashback offers. These perks can help you save money on banking fees.

Exclusive Products: Meeting the MAB requirement might unlock access to exclusive financial products like higher loan limits or investment options with better rates.

Improved Creditworthiness: Though not a direct impact, maintaining a good banking history, including keeping a steady MAB, can be a positive factor for your credit score. This can make it easier to secure loans and credit cards in the future.

Safety Net: Having a buffer in your account through the MAB can be a safety net for unexpected expenses. You’ll have some readily available funds to handle emergencies without dipping into other savings or incurring debt.

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. 

RazorpayX is one such full-stack banking suite that allows business owners to pay taxes, schedule payments, pay vendors seamlessly and check invoices all from a single dashboard. 

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!

 

FAQs 

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.

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