If you have a savings bank account open in any bank, you need to maintain it. In case of failure, the bank has the authority to penalize you. This is where the Monthly Average Balance or MAB comes in. Monthly Average Balance is the amount that is calculated at the end of every month until you have a savings account opened with the bank. The process of amount calculation depends upon the bank as well as the penalty. This amount needs to be maintained for the whole month in your bank savings account. Failure to do so results in penalties.
How Does Your Bank Calculate The Monthy Average Balance Amount?
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Any bank has the authority to set the penalty as well as the Monthly Average Balance. Your task is to keep the required amount in your savings account to avoid any fine on your name. The Monthly Average Balance generally varies from Rs 10,000 to Rs 1,000. The calculation is very simple. The Monthly Average Balance is calculated by finding out the average of all the closing day balances in the savings account of each and every day in a month of the user.
Also, banks give you an option to initiate a zero-balance account in case your account is a salary account or if you have opened a basic savings bank deposit account. Since these accounts have the most basic features included in them, they do not have a minimum balance requirement.
You can put in a desirable sum in your account. On a regular savings account, Monthly Average Balance (MAB) is taken into consideration for the sole purpose of calculation of interest return and the penalty applicable.
So, to calculate the Monthly Average Balance, all you have to do is add up all the closing day balances from different days of the month. Thereafter, you have to divide this total amount by the number of days in the month. Hence, the entire calculation is not very difficult. Below, the method has been formalized.
MAB = (Total of all the EOD closing balance)/(number of days in a month)
Let’s take an example to make things much more clear.
Mr. Dubey has a savings bank account in a particular bank. Talking about the month of April, his Monthly Average Balance for at the initiation of the month, ie, 1st April was Rs 10,000.
Further, the withdrawal of Rs 8,000 was done by Mr. Dubey after 10 days. After this withdrawal, Mr. Dubey’s account was credited with Rs. 2000 on the 20th of the month. Then, let’s check his Monthly Average Balance for the month :
The total balance of 10 days from 1st April to the withdrawal on 10th April was Rs 10,000. Thereafter, the total balance was Rs 2000 for the next 10 days until 20th April. Then following the deposit, the amount was Rs 4000 for the next 10 days. So, (10000+2000+4000=) Rs 16000 was the total amount balance in the 30 days. Hence, the Monthly Average Balance can be calculated as (16000/30 =) Rs 533. This balance is to be maintained in the account for the whole month.
Also, one thing about the calculation of Monthly Average Balance is notable. Keeping Rs. 10000 in your savings bank account for over 15 consecutive days and keeping Rs. 5000 for 30 days is one and the same things. This is because :
15 days * Rs. 10000 = Rs. 15000 = Rs. 5000 * 30 days.
Maintainance Of Your Account To Avoid Charges
In case you are not able to maintain your account, you will be the victim of penalties. Also, many believe that it is very difficult to maintain the minimum balance, but it is very simple. You don’t need much to achieve this. Given below are a few methods that will actually help you in the maintenance of your account and save you from penalties:
1. Never Think About Opening Multiple Account In Multiple Banks :
This is a mistake many people often make. Also, the best way is to handle a single account instead of many. Each month you should seek to satisfy the monthly average balance (MAB). But, if you have many saving accounts under your name, you will never be able to maintain consistency. Hence, open one account and stick to maintaining it. This is important if you want to save yourself from any kind of fine.
2. Try To Make Lump Sum Deposits :
Consider an example. If your monthly average balance (MAB) is around Rs. 5000 and you are lying back then, this is a very smart way of handling the situation. You can deposit Rs. 20000 for a week or so and thereafter, your overall average will be much better. This is one of the most beneficial ways to deposit money and avoid penalties.
3. Withdraw Money Intelligently :
While implementing the withdrawal of your money for initiating a payment, use your debit card offered by the bank on a requisite day. Also, using the online/POS payment method can be a good way too. This is because withdrawing money in advance will hold back the chances of earning interest on your savings bank account.
Frequently Asked Questions.
1. What is the difference in the monthly average balance (MAB) of PSU banks and the Private ones?
Many PSUs like SBI, Allahabad, etc have less Monthly Average Balance (MAB) associated with them. The limit of monthly average balance is around Rs. 5000 whereas the fine is maximum up to 40-50 INR in these banks. But, in comparison to the Monthly Average Balance of the private one, its too low. Private banks have a limit of around Rs. 10000 and fine for not maintaining these charges are around Rs. 750.
2.What is the difference between Monthly and Quarterly Average Balance?
Quarterly Average Balance is the actual sum of all closing balances of every quarter divided by the number of the day in the quarter.
QAB = Sum of EOD balances/Number of days in the quarter
Each quarter consists of 3 months that is around 30 days each. Since there are 4 quarters in a year, the total number of days in a quarter 90. The standard quarters are set as April-June, July-September, October-December, and January-March. In accordance with these quarters, the QAB is calculated.
For example, if you have Rs. 5000 as your QAB, you can ensure an amount of Rs 5000 for every day of the quarter or a deposit of around Rs. 450000 at the closing day of the quarter. This is how the system of Quarterly Average Balance works. You can see it is different than MAB in many ways. Also, MAB is much better since much less money is involved than QAB.
3. How is tax deduction involved in the maintenance of MAB?
You can claim a tax deduction of up to Rs. 10000 under Section 80TTA. This is a very beneficial aspect of MAB in a savings account. The deduction is available for over and around Rs. 150000 under Section 80C of the Income Tax Act, 1961.
Now, we know that Monthly Average Balance (MAB) is taken for calculating interest return and the penalty applicable.