What is the Monthly Average Balance Requirement and Its Impact on Zero Balance Accounts?

You have just started out, taking those first steps towards managing your finances. It is exciting to open your very own bank account and feel a bit more independent. As you go through the setup, you quickly realise that banking has some terms and rules. Each impact how you manage your money. You might not have expected to hear about things like minimum balance and other requirements so soon, but here you are, learning as you go.

This guide breaks down what is monthly average balance requirement and how you can manage it. We will also explore an alternative, an account where there is no such requirement and discuss whether it is the right choice for you.

What is the monthly average balance requirement?

Monthly Average Balance (MAB) requirement is set by banks, specifying the minimum average amount that needs to be maintained in a savings account over a month. It is calculated by adding up the account’s closing balance for each day of the month, dividing the sum by the number of days in that month​.

If the MAB falls below the required amount, banks may impose penalties, which vary across institutions and account types. For instance, some accounts may have a higher MAB requirement in metro areas compared to rural areas​. Maintaining this balance is not only about avoiding fees but also potentially unlocking benefits like exclusive offers on financial products.

How much do banks charge for non-maintenance?

MAB charges for savings accounts generally range from around ₹100 to ₹600. This can go higher based on the type of account and the specific bank policies. Banks impose these fees to encourage customers to keep a consistent balance in their accounts, which helps the bank maintain liquidity. This practice also allows banks to offer additional services, such as higher interest rates or waived fees, as rewards for maintaining the required balance. By ensuring account holders maintain a minimum balance, banks create a stable source of funds that supports various banking services and operations.

What are the ways in which you can maintain the MAB requirement?

If you just have one account, here are some ways to maintain MAB:

• Track your spending: Regularly review your balance and expenditures using mobile or online banking. By knowing your spending patterns, you can avoid sudden dips that might put you below the required balance.
• Plan withdrawals carefully: Instead of frequent withdrawals, try to make fewer, larger withdrawals. This keeps your balance stable and helps you avoid dropping below the required MAB on any day.
• Use budgeting tools: Many banks offer budgeting tools within their mobile apps, which can help you monitor your account balance and alert you if you are at risk of falling below the MAB requirement.
• Consider linking a fixed deposit: Some banks offer sweep-in or sweep-out facilities where funds are moved between your savings account and a fixed deposit. This ensures your balance meets the MAB while still earning interest on excess funds.

What’s the alternative?

A zero-balance savings account is an option that allows you to skip the minimum balance requirements altogether. With these accounts, you are free from penalties for not maintaining a specific balance, which can be especially beneficial if your income is irregular or you prefer not to monitor your balance constantly. Most zero-balance accounts offer basic banking services, such as free online transfers, ATM access and digital banking tools for convenient transactions.

In India, many banks provide zero-balance accounts with features like free debit cards, mobile banking and a decent rate of interest on deposits. However, they may come with fewer perks compared to standard savings accounts. For instance, the interest rates might be slightly lower and there could be limitations on transactions or access to certain banking products.

Wrapping up: What should be your next step?

If you are considering a zero-balance savings account, your next step should be to compare various options available from different banks. Look into the features, interest rates and any potential fees, like transaction or dormancy charges, associated with each account. It’s essential to select one that aligns with your financial habits and goals. Otherwise, keep track of your monthly average balance by following the discussed strategies.