Monthly Average Balance or MAB is the average of all the closing-day balances noted in a specific month. MAB is calculated by adding each day’s closing balance and dividing it by the total number of days present in that month.
MAB = (Sum of all the EOD closing balances)/ (number of days in a month)
Minimum Monthly Average Balance
Different banks have different requirements for minimum monthly average balance. Moreover, this requirement changes with respect to the bank’s placement in city, village, or town. Typically, a bank requires city people to have a greater minimum MAB in comparison to the small-town or rural people. In case, your MAB is less than the minimum MAB mandated by the bank, then you suffer by way of penalty.
Not all the accounts need to maintain MAB. Bank accounts like basic PM Jan Dhan Yojana Account do not require to maintain monthly account balance.
Calculation of Monthly Average Balance
Let’s assume that a bank asks you to maintain a minimum monthly balance of Rs.5000. Then to calculate the monthly average balance of April, we need to calculate the balance in the bank account at the end of each day.
Suppose the carry over amount from March to April on April 1st is Rs. 6000.
The amount remains undisturbed till April 14, when you withdraw an amount of Rs. 4000. So, EOD balance for April 14 would be Rs. 2000
On April 20, you again deposit an amount of Rs. 10000. Now EOD balance for April 20 would be Rs. 12000.
There are no more activities in your bank account after this date for the month of April.
Now to sum up the MOB we need to sum up the End-of-Day balances for each day in April.
For 13 days, that is from April 1 to April 13, the sum of EOD balances would be Rs. 6000 X 13= Rs. 72000
For the change in amount, the next sum of EOD balances from April 14 to April 19 would be Rs. 2000X 6= Rs. 12000
Now, again on April 20, there is new activity in your account. So, the new sum of EOD balances from April 20 to April 30 would be 12000X 11= Rs.132000
Monthly Average Balance will be Rs. (72000 + 12000 + 132000) / 30 = Rs. 216,000/ 30 = Rs.7,200
Hence, the MAB for April would be Rs. 72000 which is higher than the minimum MAB requirement of the bank. This would save you from any penalty.