Everything You Need to Know About the Average Monthly Balance of a Savings Account

AMB is the average of your daily closing balance, calculated at the end of every month.

When opening a savings account, the provider must have told you that the average monthly balance needs to be, for instance, ₹10,000. Every bank has a different requirement, and you should check with them if they haven’t notified you. Today, we will discuss everything regarding Average Monthly Balance (AMB), from its meaning to how it is calculated. So, let’s begin.

What is the Average Monthly Balance (AMB)?

AMB is the average of your daily closing balance, calculated at the end of every month. Remember, this does not mean you must have the required amount daily.  The formula banks use to calculate AMB=Sum of daily closing balance/number of days in the month

Why is there an AMB requirement?

A bank requires funds to provide different services to its customers. These include lending credit, offering zero-fee debit cards, giving cashback rewards, and more. The funds are further used to invest in other financial instruments, such as mutual funds. AMB helps banks maintain their stability and, eventually, the economy.

Why is it essential to maintain an Average Monthly Balance?

As a savings account holder, you should maintain this requirement to:

• Prevent paying additional charges: Banks levy penalties on those failing to meet the AMB requirement. If the charges accumulate over time, this can lead to financial strain.
• Keep access to the perks/benefits: Maintaining the required Average Monthly Balance allows banks to continue providing the perks like cashbacks, free chequebooks, etc.
• Instil a better financial habit: You can also think of Average Monthly Balance as a way to limit excessive withdrawals. The requirement acts as an alarm, reminding you to avoid unnecessary purchases and fostering smart spending habits.
• Earn higher returns: If your savings account balance is higher, you are likely to earn better interest. You earn interest on your daily closing balance (based on the interest rate), which is then credited quarterly to your account.

Tips to maintain Average Monthly Balance in your account

Maintaining Average Monthly Balance shouldn’t be a fuss with the following tips:

1. Have only one savings account. This will help you focus on maintaining balance in just one instead of two. You could otherwise opt for a zero balance savings account if you don’t want to deal with the hassles of maintaining average monthly balance. Yes, you can have other accounts for specific purposes, but you should stay vigilant.
2. Maintain a sound frequency of deposits and withdrawals. This means that instead of small, frequent deposits, try to accumulate and make larger transactions. For withdrawals, plan better and choose to make larger amounts with lesser frequency.
3. Be aware of auto-debit payments and other scheduled bank transfers. Set aside this amount and have sufficient balance in your account to avoid disturbing the AMB requirement.
4. Track balance online. Use net and mobile banking to check your bank balance periodically. This way, you can maintain the required balance and transfer money when funds run low.
5. Select automatic transfers. This function allows account holders to schedule a monthly transfer of a specific amount from one account to another (salary to savings). Select the appropriate savings account for you.
6. Consider whether you are willing to accept a higher AMB requirement. Otherwise, you must compare different accounts and opt for the one with a lower AMB.

Does AMB apply to a zero balance savings account?

No, AMB does not apply to a zero-balance savings account. Opening one is super smooth and easy. This is the ideal choice if you need to open an account instantly. There are many new-age savings accounts that you can apply from your phone using your Aadhar and PAN card. For these accounts, there are no charges for non-maintenance of a minimum balance.

According to the guidelines set by the Reserve Bank of India (RBI), you can have only one zero-balance account in one bank. So, keep that in mind if you plan to open more than one for specific purposes. Remember, though, that it’s not advisable to always keep your balance at zero or very low, as this could leave you financially vulnerable.

Endnote

That’s everything you need to know about Average Monthly Balance. Use the suggestions in the article to improve your financial habits. You can seamlessly maintain the average monthly balance with a better understanding and approach. 

Each bank has different requirements, so compare and check the AMB requirements before you open an account. If you already have an account, implement the strategies discussed in this blog post. We hope you find these tips helpful in managing your savings account effectively.

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