You recently opened a new bank account and want to keep track of your finances more effectively. You have heard the term “minimum average balance” tossed around but are not quite sure what it means or how to calculate it. Understanding how to calculate a monthly average balance is crucial because it helps you avoid unnecessary fees, qualify for benefits, and manage your spending.
What is average monthly balance?
The Average Monthly Balance (AMB) is the average amount of money you need to maintain in your bank account over a month. Banks use this metric to ensure that customers keep their accounts active and sufficiently funded. The minimum monthly average balance varies across different types of accounts and banks.
Why is it important to maintain a monthly average balance?
Maintaining the minimum average balance is crucial for several reasons:
1. Avoid penalties: Banks often levy penalties if the required balance is not maintained. These charges can accumulate and become a financial burden over time.
2. Access to benefits: Many accounts offer perks such as higher interest rates, free chequebooks or reduced fees for maintaining a healthy balance.
3. Creditworthiness: Consistently maintaining a good balance can improve your credit score and make you eligible for loans and other financial products.
4. Financial discipline: Monitoring and maintaining your balance encourages better financial habits and helps in planning your finances more effectively.
How is monthly average balance calculated?
Knowing how to calculate average monthly balance in bank account is essential for efficient financial management. Here's a step-by-step guide to understanding this calculation:
1. Daily balance calculation: Record the closing balance of your account for each day of the month.
2. Sum of daily balances: Add up all the daily balances recorded throughout the month.
3. Divide by number of days: Divide the total sum by the number of days in that month.
The formula looks like this:
Monthly Average Balance (MAB) = Sum of Daily Closing Balances / Number of days in month
For example, if the sum of your daily closing balances for a 30-day month is ₹1,50,000, your MAB would be:
MAB = ₹1,50,000 / 30 = ₹5,000
This simple calculation helps you understand how is monthly average balance calculated and allows you to plan your deposits and withdrawals accordingly.
Tips to maintain minimum average balance
Maintaining the required balance might seem challenging, but with a few strategic actions, it can be managed effectively.
1. Don’t open multiple accounts: Having several accounts can dilute your funds, making it difficult to maintain the required balance in each account. Focus on one or two accounts that suit your needs.
2. Make lump sum deposits: Instead of small, frequent deposits, aim to make larger, less frequent ones. This approach helps keep the balance stable and reduces the risk of falling below the required average.
3. Intelligent withdrawal of money: Plan your withdrawals carefully. Try to withdraw money in larger amounts and less frequently. This strategy ensures that your daily balance does not dip too low on any given day, helping maintain the required average.
Significance of maintaining a healthy minimum average balance
Maintaining a healthy balance has several benefits beyond avoiding penalties:
1. Enhanced relationship with your bank: A well-managed account can improve your standing with your bank, making it easier to negotiate better terms for loans and other services.
2. Access to premium services: Some accounts offer premium services, like dedicated relationship managers, higher withdrawal limits or special offers, for customers who maintain a higher balance.
3. Financial security: Keeping a higher balance provides a financial cushion in case of emergencies, ensuring you have funds available when needed.
4. Investment opportunities: Banks often offer investment products that are accessible only to customers maintaining higher balances, such as certain Fixed Deposits or investment-linked Savings Accounts.
Benefits of maintaining Monthly Average Balance
- By maintaining a required minimum average balance, you avoid incurring penalty fees that banks often charge for falling below a certain threshold. These fees can immediately add up and diminish your savings.
- Banks often reward customers who maintain a monthly average balance with access to premium services such as no-cost ATM withdrawals, waived monthly fees, or personalised financial advice.
- A consistent monthly average balance can positively impact your creditworthiness. Banks view customers who manage their accounts well as lower risk, making it easier for you to obtain loans or credit in the future.
Also Read: How much money to keep in Savings Account - A comprehensive guide
Conclusion
Understanding how to calculate monthly average balance and its importance is crucial for effective financial management. By maintaining the required minimum monthly average balance, you can avoid penalties, enjoy additional benefits and foster better financial habits. Implementing strategies such as consolidating accounts, making lump sum deposits and planning withdrawals can help you achieve this goal effortlessly.
One way to streamline your banking experience and ensure you maintain the necessary balance is by exploring Axis Bank's Savings Accounts. These accounts come with various features designed to help you manage your finances efficiently while providing attractive benefits for maintaining a healthy balance.
With the right approach and understanding, maintaining your bank account's minimum average balance becomes a manageable and beneficial task.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
