Importance of Maintaining an Average Monthly Balance
It is common that you may hold more than one savings account. However, you may often overlook the fact that each account has some ’Monthly Average Balance’ (MAB) requirements. As a result, you will need to allocate a larger amount to meet the MAB to avoid any penalties.
It is possible that in times of financial emergency you will withdraw the MAB that is lying idle. However, you most often fail to realize that non-maintenance of this minimum balance may result in a penalty.
You may think that you need to maintain this amount at all times. However, MAB is the total of the daily closing balance divided by the number of days. You must remember that all bank holidays and working days are included in the total number of days in the month.
You may opt for a zero balance saving account to avoid MAB requirements.
Why must you maintain the MAB?
- Penalty for non-maintenance
The average balance and penalties in case of non-maintenance differ from one bank to another. Foreign banks have higher MAB requirements when compared to Indian private sector banks. The MAB requirement for public banks is still lower.
The charges also vary from one bank to another. Moreover, it differs based on your location; charges are often higher in urban areas in comparison to rural regions.
- Maintaining the balance
The Reserve Bank of India (RBI) has instructed banks to not levy any charge for non-maintenance of the minimum balance. However, it is recommended you meet these requirements. If you fail to do so, you may pay higher charges for services such as Automated Teller Machine (ATM) transactions, number of withdrawals, account statements, and checkbook issuance.
The banks earn a certain interest on the balance you maintain in your account. Therefore, they provide other services free of cost. In case you do not retain the MAB, the banks will charge for these services, which will increase your costs.
Tips to maintain the MAB
- Know the MAB requirements
To ensure you do not have trouble in maintaining the average balance, you must know the requirements. It is also important to know if the requirement is monthly or quarterly.
- Opt for public banks
As already mentioned, public banks levy lower penalties for non-maintenance of the MAB. It is recommended you opt for a public sector bank to reduce your penalties.
- Understand the date range
You must not assume that the MAB calculations commence on the first day of the month. It is recommended you confirm the date range with your bank.
- Choose alerts
It is advisable to know the balance in your account. You may choose to receive email or message alerts in case the MAB requirements are not met.
Banks offer a zero balance savings account, which may be a good option. You must research the different options to reduce your financial commitments. Ensuring the MAB requirements are adhered to is an important aspect of financial planning.