How do banks calculate Monthly Average - Fusion - WeRIndia

How do banks calculate Monthly Average Balance

How do banks calculate Monthly Average Balance

Normally banks charge certain amount for not marinating average balance. Especially, several banks have issued guidelines on Monthly Average Balance (MAB) to their customers in this financial year.

Several people assume that MAB is the minimum specified balance which should be maintained all the time in their savings accounts.

However, in actual terms it is not so. MAB is related to the average balance in the accounts. It is the closing balance of each day of the month and the total amount is divided by total number of days in that month.

The total number of days include all the days in a particular month including holidays.


Here is an illustration on how banks calculate MAB:

Mr. X has opening balance of ₹5,000 on August 1st, 2018. Then he deposits ₹10,000 on August 10th and withdraws ₹5,000 on August 20th, and again deposits ₹10,000 on August 26th. Then, the MAB will be calculated by the banks as follows:

EOD balance is ₹5,000 from August 1 to August 10 (10days). EOD balance is ₹15,000 from August 11 to August 20 (10days). EOD balance is ₹10,000 from August 21 to August 25 (5 days). EOD balance is ₹20,000 from August 26 to August 31 (6 days).

The total of EOD balance for the month of August is as follows:

5,000 x 10 + 15,000 x 10 + 10,000 x 5 + 20,000 x 6 = 50,000 + 150,000 + 50,000 + 120,000 = 370,000.

Total number of days in August is 31.

Monthly Average Balance (MAB)= ₹370,000/31 = ₹11,935.48.

If the specified MAB is ₹10,000, then it is not a problem as the balance for this month is more than the stipulated amount.

Some banks adopt Quarterly Average Balance (QAB) criteria for minimum balance requirements. It is also calculated in the same way.

Almost all banks levy penalty if you do not maintain minimum balance. So, make sure that you have minimum balance in your bank accounts.

image Credit: Peakpx / CC0 1.0


Image Reference: https://www.peakpx.com/19670/black-casio-desktop-calculator

Leave a Reply

Your email address will not be published.