For those with multiple savings accounts and living on a limited budget, maintaining a monthly average balance (MAB) can be a daunting task. The monthly average balance is the minimum amount you must keep each month in your savings account. Most of us are under the impression that the average monthly balance is the average daily balance we have to maintain.
Fortunately, this is not the case. The minimum average balance is calculated by adding the closing balance of your account each day divided by the number of days in that month. So if your balance was below the threshold for most of the month, even then you can avoid a penalty by maintaining a higher amount for the rest of the month.
Consider this: Suppose your bank requires you to maintain an average minimum balance of Rs 5,000. For the month of August, you have the following closing balances: From August 1 to 5, the closing balance for 5 days was Rs 2,000. From August 6 to 10 for 5 days it was Rs 3,000, from August 11 to 15 for 5 days it was Rs 5,000 and from August 16 to 18 for 3 days it was Rs 1,000. a total of 18 days, you had a total closing balance of Rs 53,000. Based on the average monthly balance of the first 18 days, you maintained a MAB of Rs 2,944 (53,000/18).
Since it is below the threshold of Rs 5,000 set by the bank, you must now increase the balance in the last 13 days of the month. The amount you need to maintain is [(31 x 5000) – (53,000)]/13]. It is equal to Rs 7,847. Therefore, by maintaining the daily balance of Rs 7,847 on average for the remaining part of the month, you can meet your monthly average balance requirement and avoid paying a high penalty.
If you don’t want to lock in that amount for the whole month, there’s a nifty way to do it. All you need is to keep Rs 1,02,000 for a single day. After that, you can bring your balance even below zero as you have already completed the requirement levels.
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