Opening a savings account is one of the oldest and most reliable ways of saving money with the bank's security. People generally choose a savings account over any other account because of the perks it offers. When you open a savings bank account, your principal amount is always under a safe umbrella, irrespective of how much interest you gain on the same. In addition, many banks offer a minimum balance in savings account, helping you in a hassle-free banking experience.

One can easily quote that opening a savings bank account and earning interest on your savings is the best first step to your investment and savings journey.

What Is a Minimum Balance Requirement for A Savings Account? 

The minimum balance needed to maintain a savings bank account is subject to switch from one bank to another, like the interest rate. There are primarily two types of savings accounts - regular savings account and zero balance savings account. Banks have a particular minimum balance limit that an account owner must maintain; to save themselves from paying the charges levied by the bank.

Nevertheless, with the variations in other banking products, a savings account has also significantly changed from a minimum balance account to a digital zero balance savings account. Several banks now offer zero balance savings account due to increased demand compared to the age-old pattern of keeping thousands in the bank account to dodge charges. The interest rates for the savings account on these accounts are also high, making it an even more likeable choice.

Average Minimum Balance

In the banking sector, a minimum monthly balance is an average amount that a financial institution demands the account owners to maintain in their savings accounts. The average amount should be maintained by the end of each month to waive off the maintenance fees. If you have a savings account at any bank, there must be a prescribed value that you have to maintain. Hence, the Bank saving account minimum balance should be maintained after the calculation of average minimum balance as prescribed by the bank you hold an account with.

The Monthly Average Balance (MAB) is nothing but the minimum amount you must keep in your Savings Account every month. The figure is calculated at the end of each month, and failure to maintain this minimum average balance will result in charges or maintenance.
For instance, a particular bank asks that you maintain Rs 10,000 as the average monthly balance:

  • On August 1, the balance in the account was Rs 10,000.
  • On August 12, withdrawal of Rs 8,000 took place. EOD balance is Rs 2,000.
  • On August 18, the deposit of Rs 8,000 took place. EOD balance is Rs 10,000.
  • Adding up the EOD balances: For 11 days from August 1 to August 12-sum of EOD balance will be Rs (10,000*11) = Rs 110,000
  • From August 12 to August 18, the sum of EOD balances will be Rs (2000*6) = Rs 12,000
  • From August 12 to August 18, the sum of EOD balances will be Rs (2000*6) = Rs 12,000
  • From August 18 to August 31, the sum of EOD balances will be Rs (10,000*13) = Rs 130,000.
  • Sum of all the EOD closing balances = Rs 264,000
  • Total number of days in the month of August = 31
  • Hence, the minimum average balance will be 264,000/31, i.e., Rs 8,516.12

PS: The Minimum Average Balance requirement for bank saving account balance varies from bank to bank and branch to branch. For metro/urban branches, the demand is usually greater than for semi urban/rural branches.

Additional Read: Reasons Not to Leave Your Savings Account Dormant

How to Avoid Minimum Balance Requirements 

Suppose you land in a spot where you cannot or forget to maintain minimum balance requirements imposed by your bank and pay out charges. As a result, a zero-balance savings account might be just the right thing you require to enjoy a stress-free banking path.

You can opt for a zero balance account by completing the KYC (know your customer) formalities, and you are good to go. The most significant advantage of such bank accounts is that there is no need to maintain a minimum balance in the savings account.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.