Many savings account holders wrongly assume that Monthly Average Balance (MAB) means they must keep a stipulated amount of money parked in their account at all times. MAB is actually defined as the sum total of the amount of money at the end of each day of the month divided by number of days of the month. All working days and bank holidays are included in the number of days in the month.
The amount of money in your bank account at the end of each day makes up for the day’s final balance, also known as the end of day (EOD) closing balance. The monthly average balance is derived by dividing the sum total of EODs for every day for the month by number of days in that month.
Illustration: Let us assume you have a balance of Rs. 15,000 on January 1 in your savings bank account. Assuming you withdrew Rs. 10,000 on January 5 but deposited Rs. 10,000 on January 20, here is how your MAB for the month will be calculated.
Jan 1 to Jan 4: EOD balance = Rs. 15,0004 = Rs. 60, 000
Jan 5 to Jan 19: EOD balance = Rs. 5,00015 = Rs. 75,000
Jan 20-Jan 31: EOD balance = Rs. 15,000*12 = Rs. 1,80,000
Total Balance = Rs. 60,000 + Rs. 75,000 + Rs. 1,80,000 = Rs. 315,000
Number of days in Jan (including bank holidays and working days) = 31
Final MAB = Rs. 3, 15,000/31 = Rs. 10,161.29
The charges or penalty for non-maintenance of MAB varies from bank to bank. The State Bank of India, for example, has recently introduced minimum balance requirements for all bank account holders except basic savings bank and Pradhan Mantri Jhan Dhan Yojana (PMJDY) accounts. Account holders are now required to maintain an MAB of Rs. 5,000 if they live in metro cities and Rs. 3,000, Rs. 2,000 and Rs. 1,000 if they live in urban, semi-urban and rural areas.
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