Managing your finances effectively often starts with understanding the key requirements of your savings bank account. One important aspect to be aware of is the Average Monthly Balance (AMB) also known as the Monthly Average Balance (MAB). It refers to the minimum average amount that you are required to maintain in your savings account throughout the month. Banks calculate the AMB at the end of each month to determine if you have met the minimum balance criteria. Failing to maintain the stipulated AMB can attract penalty charges.
How to calculate the average monthly balance in a bank account?
To fully understand what is average monthly balance, it’s essential to look at how it is calculated. Banks use a simple formula to calculate the AMB.
AMB = Total of all daily closing balances in a month/Number of days in that month
For example, if your account had the following daily closing balances in a 30-day month:
Day
Daily closing balance
1
₹3000
2
₹4000
3
₹5000
4
₹3000
5
₹4000
6
₹5000
7
₹3000
8
₹4000
9
₹5000
10
₹3000
11
₹4000
12
₹5000
13
₹3000
14
₹4000
15
₹5000
16
₹3000
17
₹4000
18
₹5000
19
₹3000
20
₹4000
21
₹5000
22
₹3000
23
₹4000
24
₹5000
25
₹3000
26
₹4000
27
₹5000
28
₹3000
29
₹4000
30
₹5000
The total of all the daily closing balances = ₹1,20,000
Number of days in the month = 30
Therefore, AMB = Total of daily closing balances/Number of days
= 1,20,000/30
= ₹4000
So, your AMB for the month is ₹4000.
Banks specify different AMB requirements
Different banks prescribe varying AMB requirements depending on the type of savings account. For example, the AMB may be higher for premium savings accounts that offer additional benefits compared to regular savings accounts. Customers need to maintain the stipulated AMB to avoid penalty charges.
How to maintain the required average monthly balance
Here are some tips to help maintain the required AMB in your savings account.
● Consolidate accounts: Having fewer savings accounts makes it easier to monitor and maintain AMB. Make sure to close unused accounts.
● Plan lump sum deposits: Deposit a higher amount for a few days in a month to increase the average balance.
● Automate transfers: Set up automated monthly transfers to your savings account soon after your paycheck to maintain the balance.
● Limit withdrawals: Try postponing non-critical expenditures to a later date to ensure your balance does not drop too low.
● Track diligently: Use mobile/internet banking to track your daily balance. Maintain a buffer to avoid breaching AMB limits.
In addition to this, it’s essential to look for a bank account with a minimum balance requirement that you can manage with ease. For instance, the Indus Multiplier Max Savings Account by IndusInd Bank comes with a low balance requirement of ₹10,000.
This savings account also comes with the smart-sweep feature that automatically converts any excess balance above the predetermined threshold to a Fixed Deposit (FD), allowing you to earn higher returns. The moment there is any shortfall in your savings account balance, a portion of the linked FD is automatically broken without levying any penalty.
You can open a bank account with IndusInd Bank online through a 100% digital, paperless process. Apply today!
Consequences of not maintaining the AMB
Failure to maintain the prescribed AMB will lead to the bank levying penalty charges. The charges depend on factors like:
● How much your average balance falls short of the required AMB
● The type of account you hold
● Your bank’s policy
The penalty is usually a fixed fee, like ₹100 for balances 25% below the AMB, and ₹200 for balances 50% below. In some cases, banks levy a percentage of the shortfall as a penalty. Make sure your banking partner is transparent and has a good customer service team.
Some banks offer a grace period, allowing you to restore the balance before they impose charges. It helps to proactively maintain the AMB as per your bank’s rules to avoid penalties.
Key takeaways
The average monthly balance is an important concept for savings accountholders to understand. Banks use a simple formula to calculate it based on your daily closing balances. Different banks have varying AMB requirements that customers must maintain to avoid fees. With some planning and diligent tracking, meeting your AMB is quite achievable. Being aware of your bank’s AMB policy and taking steps to maintain it will help you avoid unnecessary penalties.
