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What is Average Monthly Balance (AMB)? Know its impact, how to calculate and more

27 Dec 2024 by Team FinFIRST
A financial advisor explaining average monthly balance calculations to a client with a graph in the background.
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A savings accountholder needs to maintain their account’s monthly average balance to avoid facing non maintenance charges

According to banking terminologies, average monthly balance or AMB is the average amount that you must keep in your savings account every month. Understanding the meaning of AMB  and its working is crucial for account holders, as it determines whether they will incur maintenance charges or not and qualify for certain benefits. If the account’s average monthly balance is not maintained, a maintenance charge is levied by the bank based on its internal policies.. The AMB amount is computed at the end of each month.

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Why is it important to maintain a monthly average balance?


Maintaining a set monthly average balance ensures your account remains in good standing and qualifies for specific benefits associated with your savings account type. A consistent AMB may also offer the following advantages:

  1. Fee waivers and service benefits: Accounts with higher AMB often come with waivers on certain service charges, such as cheque books, ATM withdrawals, and even some financial products.
  2. Avoidance of penalties: Falling short of the required AMB can attract penalties, which can add up and impact your savings over time.
  3. Better savings: When you keep adequate funds in your savings account, you earn better interest rates that can help you grow your money over a period of time. 

To fulfil AMB requirements, you must keep sufficient amount in your account because if the AMB is not maintained, banks can levy certain charges.

Is it better to go for accounts with a monthly average balance requirement or not?


The decision between accounts with or without an AMB requirement depends on your financial standing and how you manage funds.

  1. For active savers: If you maintain regular savings, an account with an AMB requirement can be suitable as it often brings additional perks and interest benefits.
  2. For low-balance users: Accounts without AMB requirements, such as zero-balance accounts, are more flexible, allowing you to avoid penalties while accessing essential banking services.
  3. Transactional needs: For those who make frequent, high-value transactions, AMB accounts often come with better facilities and support depending on the bank and account type.

How to calculate monthly average balance?


Understanding AMB calculation is essential to ensure you stay within the required balance range. Here’s a step-by-step breakdown:

  1. Calculate daily balance: Note down the closing balance of your account at the end of each day throughout the month.
  2. Sum up daily balances: Add all the daily closing balances for the month.
  3. Divide by number of days: Divide the total by the number of days in the month (30 or 31). For February, divide by 28 or 29 based on the year.

Formula:

Monthly Average Balance=Total Daily Balances of the Month/Number of Days in the Month

This calculation will give you the AMB, which should meet the minimum limit set by the bank to avoid charges.

Example calculation

Imagine it’s a 30-day month, and your balance varied as follows:

  • For the first 15 days, you maintained a balance of ₹40,000.
  • On the 16th day, you deposited ₹20,000, bringing the balance to ₹60,000 for the remaining 15 days.

Here’s the calculation:

  1. Total Balance for the First 15 Days:

    2. 40,000×15=6,00,000

  2. Total Balance for the Remaining 15 Days:

    3. 60,000×15=9,00,000

  3. Sum of Daily Balances for the Month:

    4. 6,00,000+9,00,000=15,00,000

  4. Monthly Average Balance (AMB):

    AMB=15,00,000/30=50,000

Tips to maintain minimum average monthly balance 
 

  1. Automate regular deposits: Set up a monthly auto-deposit from your salary account to maintain the AMB without manual intervention. With the IDFC FIRST Bank Mobile App, you can setup auto-transfers with just a few taps and without any additional cost.
  2. Keep a buffer: Maintain a slightly higher balance than the minimum requirement to cushion against occasional low-balance days.
  3. Plan withdrawals wisely: Avoid withdrawing large sums toward the beginning of the month as it may lower your daily balance, impacting the monthly average.
  4. Track balance regularly: Use mobile banking apps or SMS alerts to keep track of your balance and ensure it stays above the required limit. With IDFC FIRST Bank’s net banking and mobile banking, you get an insightful dashboard where you can check standings of all your accounts at one place and take necessary actions.

Conclusion


Maintaining the required average monthly balance is a simple yet effective way to optimise your account benefits while avoiding penalties. Consider whether an AMB account aligns with your financial habits and choose a structure that best supports your goals. Making use of these tips can help you maintain the average monthly balance of your accounts conveniently. Also, it is best to keep track of all your account information with a mobile banking app. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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