A bank account offers the account holder financial stability, liquidity, and a fixed interest rate. Many financial institutions have a minimum balance requirement for bank accounts. This rule is in place to guarantee that the bank has a minimum amount of cash on hand to cover any account transactions and fees. In addition, the banks may charge a penalty from the customer if they do not fulfil the minimum balance requirements.
Understanding the repercussions of failing to maintain a minimum balance is critical for managing the money and avoiding unexpected charges.
What is the Monthly Average Balance?
Customers often misunderstand that they are penalised by banks for failing to maintain the daily minimum balance. However, that is not the case. Banks and other financial institutions charge the customer if they fail to maintain the minimum balance calculated based on the monthly average balance.
Account holders must maintain a minimum balance in their bank accounts on a monthly basis, referred to as the monthly average balance. It is calculated by banks by adding the closing account balances for each day and dividing the result by the number of days in the period. If the amount is below average, banks frequently impose a penalty.
For instance, a bank has a minimum average balance (MAB) of Rs. 4,000. People often assume that the account must always have at least Rs. 4,000. However, this is not necessarily the case.
In reality, the requirement can be fulfilled by either keeping a daily balance of Rs. 4,000 or having a one-time balance of Rs 1.2 lakh (Rs. 4,000 x 30 days) during the month. The essential factor is that the average balance for the entire month must equal Rs. 4,000.
As a result, even though the balance fell below the threshold limit for most of the month, one can avoid paying the penalty by keeping a higher amount for the remaining days of the month.
Consequences of Not Maintaining a Minimum Balance
Most leading banks charge customers a fee if they do not maintain a monthly average balance in their bank accounts. Since the monthly average balance requirement varies for each bank, the penalty costs vary as well.
The penalty is determined by criteria such as the branch’s location and the amount of money in the account. MAB and penalty charges are also influenced by whether one lives in a metro or a semi-urban city. The penalty has no maximum limit, and banks have occasionally charged 100% in rare situations.
Apart from the penalty, if customers do not maintain a minimum balance in their bank accounts, the bank may limit their access to certain services, such as overdraft protection, online banking, etc.
Tips to Maintain Minimum Average Balance
Here are some tips to maintain a minimum average balance and avoid paying penalties:
The most effective way to avoid penalties is to open a bank account online with no minimum deposit, i.e., a bank account opening online zero balance. Most banks offer these accounts with no monthly or quarterly minimum balance requirement.
- It will be more convenient to manage only one savings account rather than several. It will be simpler to monitor a single account, and one will save time maintaining a minimum average amount for all accounts.
- Setting up auto-sweep options is the easiest and most efficient way to maintain the minimum average balance in the savings account. Account holders may quickly move funds between the fixed deposit and savings accounts by linking them, ensuring that the minimum average balance never falls below the required amount.
Open bank account online with no minimum deposit offers numerous benefits, including instant bank account opening, no charges for non-maintenance of balances, higher interest rates, and a paperless process.
Failure to maintain a minimum balance in a bank account can have several severe effects. The most typical consequence for failing to maintain the minimum amount is a fee levied by the bank, which can accumulate over time. In addition, failing to maintain the minimum amount might result in the account being frozen or terminated, making it harder to retrieve the cash. As a result, it is critical to frequently examine the balance in a bank account and verify that it fulfils the bank’s minimum balance requirement.