The State Bank of India was recently forced to reduce the minimum average balance or MAB for its savings accounts. This occurred after it was revealed, the bank was profiting from the fines it collected from customers who didn’t maintain a minimum average balance in their accounts each month.
Many banks penalize customers who don’t maintain a certain sum of money in their savings account every month. The MAB is defined as the average of the minimum sum maintained in a savings account every month. The amount of penalty is determined by how much the balance deviates from the minimum average balance prescribed by the bank.
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If you cannot maintain a monthly average balance for any reason, you can still avoid paying the penalty if you know how the MAB is calculated. In fact, one of the reasons for launching the zero balance savings account product was to get around this feature of savings account and make banking more accessible to poor folk.
Why your understanding of MAB might be incorrect
Many people believe they have to maintain a certain amount of money in their bank account all through the month to prevent the bank from levying a penalty for non-maintenance of MAB. But it is not so.
Did you know, banks consider holidays for the purpose of calculating the MAB? So all holidays and working days have to account for. Second, the balance available in your bank account at the end of the day is considered an ‘end of day’ balance and not the average balance until that day.
This means it is enough if you maintain a monthly average of the required amount and not a daily balance. So it is okay if you don’t maintain the minimum balance on some days in the month, as long as you make up for it in the remaining days. Here are some tips for maintaining an acceptable minimum average balance.
Keep a high balance for a few days in a month.
Let’s take Kotak Mahindra Bank’s Nova savings account as an example. This account requires you to maintain a MAB of Rs. 5000. Now you don’t have to keep Rs. 5000 in your account every day of the month, as long as you maintain Rs. 55,000 for three days a month. This is allowed because keeping Rs. 55,000 for three days is considered equivalent to keeping Rs. 1,65,000 for a month. Rs. 1,65,000/31 is Rs. 5322, which is way above the Rs. 5000 MAB requirement.
Try to open an account in an urban, semi-urban, or rural area
Some banks charge less for accounts opened in urban, semi-urban, and rural areas compared to accounts opened in metro cities. Once you open the account, request an internet banking facility. Once you have this facility, you can manage your account from anywhere and keep track of your MAB.
Use the auto-sweep option.
If you opt for the auto-sweep option, you don’t have to worry about keeping more money in your account than the MAB requirement. For instance, you can specify that any amount more than Rs. 10,000 will be auto-swept into an FD. With this option turned on, you won’t ever have to calculate your average balance. You will also earn more from a fixed deposit than a savings bank account.
Find out your bank’s date range for MAB calculation
Most banks use the regular starting and ending date (1st day and last day of the month) to calculate MAB. However, some banks don’t follow this. They take the 5th of the month as the start date and the 4th of the next month as the end date. But don’t take our word on the range dates. It is best to clarify it with bank officials.
Go for a zero-balance savings account.
If you open a zero-balance savings account, you will never have to worry about maintaining a MAB because these accounts don’t require any. For this reason, many people, who use their savings account occasionally, are switching to zero balance savings account. Please note, these tips are fully legal and can be used by anyone worried about maintaining a MAB but also desirous of enjoying full banking services.