• Home
• Progress With Us Articles
Jun 19, 2024

# How to calculate the Monthly Average Balance? – A step-by-step guide

Managing your finances effectively involves more than just keeping track of your income and expenses. A critical aspect often overlooked is maintaining the right balance in your bank account. One key metric used by banks is the Monthly Average Balance (MAB). Understanding how to calculate monthly average balance and its significance can help you avoid penalties and make the most of your banking experience.

## 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.

## 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.