Find out how Monthly Average Balance is calculated
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.
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 |
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 |
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, to maintain the required MAB of INR 10,000, you need to top up the balance in your account and ensure your end of day account balance from 29^{th} to 31^{st} of the month is at least INR 19,667. For example, assuming no withdrawals are made to the account from 29^{th} to 31^{st} of the month and you want to top up your account on 29th of the month; you will need to deposit at least INR 10,703 (i.e. 19,667 - 8,964) to meet the required MAB.
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.