Unpacking the Monthly Average Balance (MAB) Formula
Many bank customers get frustrated when they see penalty charges for non-maintenance of balance, despite having more than the minimum limit in their account for a few days. This happens because the requirement is calculated as the Monthly Average Balance (MAB) rather than a static daily balance.
To calculate MAB, add the end-of-day balances of the account for each day of the month, and divide that total by the number of days in that month. If your MAB falls below the threshold, penalties apply. You can also explore where to keep emergency funds to optimize your liquid cash locations.
Effective Strategies to Avoid MAB Penalties
- Sweep-In Accounts: Opt for a sweep-in facility where excess funds are automatically converted into fixed deposits but are broken instantly to maintain balance when needed.
- Consolidate Accounts: Avoid spreading small amounts of cash across multiple banks. Close unused accounts to reduce maintenance overhead.
- Monitor End-of-Day Balances: If your balance dips on a particular day, deposit extra cash for a few days to pull up the monthly average.