Savings account tip: Can't maintain bank's minimum balance? Do this to avoid fine

Monthly average balance is the minimum amount you are required to maintain in your savings account every month.

For those having multiple savings accounts and living on a thin budget, maintaining a monthly average balance (MAB) can be an uphill task. Monthly average balance is the minimum amount you are required to maintain in your savings account every month. Most of us carry the impression that the monthly average balance is the average daily balance we must maintain.

Luckily, it's not. The minimum average balance is calculated by adding up the closing balance in your account every day divided by the number of days in that month. So, if your balance was below the threshold limit for the most part of the month, even then you can avoid a penalty by maintaining a higher amount for the rest of the month.

Consider this: Assume your bank requires you to maintain an average minimum balance of Rs 5,000. For the month of August, you have the following closing balances: From August 1 to 5 the closing balance for 5 days was Rs 2,000. From August 6 to 10 for 5 days it was Rs 3,000, from August 11 to 15, for 5 days, it was Rs 5,000 and from August 16-18, for 3 days, it was Rs 1,000. For total 18 number of days, you had total closing balance of Rs 53,000. Going by the monthly average balance for the first 18 days, you maintained MAB of Rs 2,944 (53,000/18).

Given that it is below the Rs 5,000 threshold set by the bank, now you need to increase the balance in the final 13 days of the month. The amount you need to maintain is [(31 x 5000) - (53,000)]/13]. It is equal to Rs 7,847. Hence, by maintaining the daily balance of Rs 7,847 on average for the remaining part of the month you can meet your monthly average balance requirement and save from paying a high penalty.

In case you don't want to block this amount for the whole month then there is a clever way of doing this. All you need is to keep Rs 1,02,000 for just one day. After that, you can bring your balance even below zero as you have already fulfilled the requirement levels.

-          businesstoday