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Savings accounts are financial instruments for retaining capital while earning interest. Nevertheless, most account holders must maintain a Monthly Average Balance (MAB) to avoid penalties.
MAB is the minimum balance that you must maintain on average every month. It can be calculated by dividing the daily balances by the number of days in the month. Most savings accounts have fixed MAB requirements, and failure to meet them can lead to penalties.
Why do banks have an MAB requirement?
Banks apply Minimum Account Balance (MAB) requirements so that you maintain a set minimum balance in your account. This helps the bank maintain liquidity and cover operational costs.
The MAB also helps the bank have enough funds to satisfy withdrawal requests and operate smoothly. For account holders, maintaining the MAB helps avoid unnecessary fees and ensures smooth account functioning.
What are the consequences of failure to maintain MAB?
Banks may impose service charges if the MAB is not being maintained. For instance, if the MAB required is ₹5,000, and you have ₹3,000, the bank can charge you from ₹50 to ₹100. Such charges could deplete your money in the long run, so keeping your balance in check and being vigilant not to fall below thresholds for MAB is essential.
What are the advantages of maintaining MAB?
Maintaining MAB comes with its benefits that affect you in your financial journey:
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Preventing penalties
The first advantage of maintaining the MAB is avoiding service charges and penalties. This helps to keep your savings intact and stops unnecessary expenses.
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Earn interest
Many savings accounts give interest on sums greater than the MAB. If you hold the MAB, you can earn interest on the surplus amount and grow your savings over time.
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Maintain a positive banking relationship
Maintaining MAB can enhance your banking relationship with the bank. This may allow you to avail yourself of better facilities such as an overdraft facility, preferred-rate loans, and priority customer care services.
How to maintain an MAB?
After understanding the importance of MAB, here are tips on how you can maintain it:
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Set up automated transfers
Set up automated regular transfers to your savings account to maintain the specified MAB. You can do this by scheduling fixed transfers from your salary account.
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Make use of online banking
Online savings accounts let you monitor your balance in real-time, which makes it easy to track and manage your MAB. You can also easily check your balance and transfer funds when necessary.
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Merge multiple accounts
If you hold many accounts, consider rolling them over into one with a lower MAB requirement. This makes it easier to manage accounts and lowers the risks of non-compliance.
Conclusion
It is crucial to keep your monthly average balance (MAB) in your savings account to prevent penalties and take advantage of the benefits of your account. Whether you have a traditional or an online savings account, being aware of the MAB requirements and keeping up with them can help you gain better control over your finances.
You can track and manage your MAB through online banking and auto-transfers, which ease the banking process and save you money. With the rise of digital banking, having an online savings account with reduced or no MAB requirements can be a solution for people seeking ease of account management and less maintenance hassle.
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