How to Calculate Monthly Average Balance

How to Calculate Monthly Average Balance

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Find out how Monthly Average Balance is calculated

Key Takeaways

  • Monthly Average Balance (MAB) is also referred to as Minimum Average Balance.
  • MAB is the minimum amount an account holder must maintain in their Savings Account.
  • You can calculate MAB by dividing the total closing balances by the number of days in a month.
  • MAB differs from EOD balance, which is your Savings Account balance at the end of the day.
  • Banks charge penalties for the non-maintenance of MAB.

Monthly Average Balance, sometimes referred to as minimum average balance or MAB, is the minimum balance or amount of funds you must maintain in your Savings Account every month. The bank calculates your account balances at the end of each month. If you fail to maintain the required MAB, the bank levies a penalty, under which your account balances can reduce even further. Find out how to calculate monthly average balances in this article.

How To Calculate Monthly Average Balance?

MAB is calculated by taking the average of all closing-day balances in a month. You add each day’s end-of-the-day (EOD) balance and divide it by the number of days in that particular month. You typically have to maintain the average monthly balances ranging from INR 1000 to INR 100,000. The MAB requirement depends on the bank and the type of account you choose to open. Below is the formula for MAB calculation.

MAB=Σ EOD Closing Balances of All Days in a Month
Number of Days in a Month

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How To Calculate Average Monthly Balance – An Example

Let us say your bank asks that you maintain INR 10,000 as the average monthly balance. Now say, you could maintain INR 8964 as MAB in a 31-days month for the first 28 days. In this instance, you are short of INR 1036 to maintain the required MAB of INR 10,000. As such, to avoid the penalty for the remaining 3 out of 31 days, you should have balances of at least INR 19,667. The below table explains how monthly average balance is calculated.

Days in a 31-days Month

Total Days (A)

Savings Account Balances on EOD (B)

A multiplied by B (AxB)

Days 1-5

5

5,000

25,000

Days 6-10

5

12,000

60,000

Days 11-20

10

7,000

70,000

Days 21-24

4

9,000

36,000

Days 25-28

4

15,000

60,000

 

28

 

2,51,000

MAB = Total of Everyday Closing Balance/Total Number of Days
Thus, AxB/31 = 276000/31 = 8964.286(Average Balance for the first 28 days)

Now, it is apparent from the above table, MAB at the end of 28 days is lower than the required INR 10,000. As such, you must deposit the required sums so that your MAB at the end of 31 days is INR 10,000 or higher. Here is the formula.

Balance required to maintain MAB in the remaining days = (MAB requirement x 31 days in the month) = Total EOD balances (AxB)/Total remaining days in the month, i.e.,

{(10,000x31) – 251,000}/3 = INR 19,667.

Thus, you must deposit INR 19,667 by the 31st of the Month to maintain the required MAB of INR 10,000.

Final Note

Now that you know how to calculate monthly average balance, ensure you maintain the required sums in your account. If you fail to do so, the bank will levy a penalty. You can also use freely available Monthly Average Balance calculators online to compute how much money you should deposit in your account each month.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.

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