Monthly Average Balance (MAB) is a term common in the Finance sector and it is all related to the Bank Account. Each and every bank in India keep the condition that, every customer has to keep a minimum balance in their account. However, there are some banks with special scheme which allows people to use their account without minimum balance.
What is Monthly Average Balance (MAB)
Monthly Average Balance is average amount you should keep in your savings account for a period of 1 month. Since the amount is calculated on monthly basis, bank will check for the average balance every month. And if the customer failed to keep the balance, then bank will impose a fine on the customer. The fine amount will be debited from the customer account later, once there is some money deposited.
Each and every bank have different slabs for the minimum balance. Banks like Canara bank only have Rs. 500 where as some bank have Rs. 5000- and Rs. 10,000/-. However, this is not the higher monthly balance limit. Even, banks offer different type of saving account with different features and limits. Hence the minimum balance for that type of account will be different.
But there are so many banks still offers zero balance account other than salary account. Kotak 811 is one of that type account, which give you almost all the features of saving account and you can use it for free without keeping any balance.
How Monthly Average Balance (MAB) is Calculated
This is the most tricky part. As the terms says, everyone is thinking that, each and every customer needs to keep the required amount always in their account all the time. But this is not the case. The calculation is not in that way.
Here we will explain it with an example. Let consider and account which have the minimum balance limit as Rs. 1000/-. Here what we think is that, we needs to keep the balance always at Rs 1,000/- or above. And at any time if the balance went down, we get fined, right ? But not at all.
Here, as we mentioned, bank will check whether the customer is keeping the minimum balance every month. Since the limit here is Rs. 1000/- then, bank will check the average balance for the whole 30 days. Each day, bank will note the available balance in the account. In that way, for the period of 30 days it will be done in that way. At the end, all these noted 30 days balance will be calculated together, so for a period of 30 days the total amount will be considered. Then the average is calculated. The finally available amount is divided by the number of days.
Now the average amount will be available. And the calculated amount is Rs. 1000/- or more, then you are safe with that.
How the calculation goes ?
Lets say, you have Rs. 1000 in your account and you are keeping the amount there for all 30 days untouched. Then the 30 day money balance is calculated like this 30 (days) X 1000 (amount) = 30000 (amount for 30 days)
Then the average is calculated like this 30000 (amount for 30 days) / 30 (days) = 1000 (monthly average balance).
So, if you are just keeping the account without any transaction, then always keep Rs. 1000 all the days.
Now let consider the account which have a good transaction. Here also we consider limit as Rs. 1000/- Let say in the first day, the account have a minimum balance of Rs. 1000/- then in the next day your account got deposited with Rs. 50,000/- after 2 days you withdrawn the full amount Rs. 51,000/ from your account. Then the remaining 27 days your account was empty.
Here the calculation goes like this 1000 (1st day) + 50000 (2nd day) + 50000 (3rd day) + [0 x 30 (27 days with 0 balance)] = Rs. 1,01,000/-
Then the average is calculated like this 1,01,000 (total balance) / 30 (days) = Rs. 3,366.66.
So the average balance here is now Rs. 3,3366 which is more than the required amount of Rs. 1,000/-. So you are safe here too.
So we can conclude that, if we have a decent transaction going on in our account, it is not necessary to keep always the minimum balance. Only thing noted is to keep the average for the 30 days time only. But if you are just keeping the account without any transaction, then make sure you always keep the minimum amount.
Note: However, this is the standard way most bank calculates the balance, depends on their policy, bank will revise the rules and the fee structure time to time. So make sure with bank regarding the minimum balance in your account and ask them whether they are doing the same calculation for your account too.