InvestorQ : How does a bank calculate the average balance?
Ishita Jain made post

How does a bank calculate the average balance?

Answer
user profile image
simran Kaur answered.
1 year ago


Most banks these days require their customers to maintain a particular average balance in their savings accounts. The duration of this average balance calculation can be either monthly or quarterly.

If a customer doesn’t comply with the monthly/quarterly average balance (MAB) rules, then he/she will be charged a penalty.

Jagoinvestor.com explains the concept this way: The monthly average balance means the average of the all the closing day balance in a given month. So given a month, add up all the closing day balance and then divide it by the number of days in the month. If you have to put it as a formula it would be

MAB = (Total of all the EOD closing balance)/(number of days in a month) Let’s take an example: Let’s say the month we are talking about is April and the minimum balance limit in your bank is Rs.5000. Now your balance at the start of the month (April 1) is Rs.10,000. You withdraw Rs.8000 on 10th April and then Deposit Rs.2000 on 20th April. What will be the Monthly average balance for the April month?

Image courtesy: Jagoinvestor