GUIDES
GuidesBankingA Guide: Minimum Balance in Savings Account: Why Banks Require It & What You Need to Know
LAST EDITED BY ANOOP MENON ON APRIL 22, 2025.
Everybody in today’s world owns a savings account. A savings account is a fundamental tool for individuals to secure their financial future, build an emergency fund, and achieve long-term financial goals.
With a savings account also comes the concept of maintaining a minimum balance, but please ensure you do not have a negative balance in your account, as the bank will charge you a penalty.
The minimum balance in a savings account is the lowest amount of money you must have in your savings account to not pay a penalty amount to the bank.
A minimum balance is the smallest amount of money a bank requires you to keep in your savings account, often calculated as a Monthly Average Balance (MAB) or Quarterly Average Balance (QAB), to avoid penalties or fees.
The minimum balance, also known as Monthly Average Balance (MAB), is the least amount of money you must maintain in your account each month. Banks calculate the minimum balance threshold by taking the sum of the daily closing balances for a month and dividing it by the total number of days in the month.
Different banks require you to maintain a different minimum balance every month. Before opening a savings account, your bank usually specifies the monthly average balance you must maintain. If you fail to maintain the minimum amount in your savings account, your bank will levy a fine on you.
Monthly Average Balance (MAB) is calculated by summing the closing balance of your account for each day of the month and dividing it by the number of days in that month. Quarterly Average Balance (QAB) follows the same principle but over three months.
Many people are often discouraged from opening a savings account, intimidated by the idea of maintaining because they are a minimum balance. However, maintaining a minimum balance can be beneficial for all account holders. Here is why maintaining the minimum balance in your savings account is important.
Banks monitor the monthly average balance on your savings account closely. Failing to maintain the minimum amount in your savings account hints that you are not financially stable. Thus, this might affect the bank’s future decisions of approving you personal loans or credit cards to you.
The obligation of maintaining a minimum amount in your savings account also motivates you to be financially disciplined. It discourages you from making erratic cash withdrawals and promotes a mindset of saving for the future.
Although this is not something that many people think about while talking about minimum balance, minimum balance can help you save a significant amount of money over time. The financial discipline it helps you achieve can allow you to reach various short-term and long-term financial goals.
Banks require a minimum balance primarily to cover the costs associated with maintaining the account (like operational costs, providing services) and to ensure the account remains active and viable for them.
As daunting as it may seem, maintaining a minimum balance in your savings account is crucial for financial stability, discipline, and long-term savings goals. It reflects your financial stability and promotes responsible financial habits.
Yes, different banks levy different penalty fees for not maintaining the minimum balance in a savings account or for having a negative balance in a savings account.
Here’s a simple formula to calculate the minimum balance required for your savings account:
(The sum total of all the daily closing balances for a month)/(Total number of days in the month)
Maintaining the minimum balance in your savings account can help you maintain a good impression in front of your bank if you need a loan or credit card. It also promotes financial discipline.
It depends on the bank. Some banks require you to maintain a minimum balance to be able to earn interest.
If your balance drops below the required minimum (MAB or QAB), the bank will likely charge you a non-maintenance fee or penalty. These charges vary depending on the bank and the type of account.
Interest in most savings accounts is calculated daily based on the closing balance and credited periodically (usually quarterly). Maintaining a higher balance generally means earning more interest. Falling below the minimum doesn't usually stop interest calculation on the available balance, but charges can erode your funds, including earned interest.
