Why is it Important to Maintain Minimum Balance in Savings Account?

Posted on Monday, May 27th, 2024 | By IndusInd Bank

The minimum balance in a savings account refers to the lowest amount of money that account holders must keep in their accounts. Banks establish these minimum balance requirements to ensure account stability and offer specific benefits to customers. The minimum balance varies between banks and types of savings accounts, so account holders must be aware of and adhere to their bank’s specific requirements. 

Important Information Regarding the Minimum Balance 

The minimum balance is the lowest amount required in a savings account per the bank’s criteria, ensuring stability and avoiding penalties. Now, let us understand what the Monthly Average Balance (MAB) is. It refers to the average monthly bank balance an account holder needs to maintain in their savings account. This average is calculated by adding up the daily closing balances of the account for each day of the month and then dividing it by the number of days in that month. Banks set monthly average bank balance requirements to ensure a stable financial position for account holders and cover operational costs. Failure to maintain the Monthly Average Balance might result in penalties or additional charges, depending on the bank’s policies. Similarly, some accounts have an Average Quarterly Balance (AQB) requirement, for instance, IndusInd Bank’s Indus Select Savings Account. 

What is the significance of maintaining a minimum balance in your savings account? 

It is essential to maintain a minimum balance in your account for the following reasons: 

• Financial Stability: A minimum balance provides financial support and stability and covers unexpected expenses. 

• Automatic Savings: Maintaining a minimum balance encourages regular savings and promotes a disciplined approach.  

Also Read: The Importance of Saving Money: Tips for Building Your Savings 

• Creditworthiness: Keeping the minimum balance positively influences your creditworthiness, impacting loan approvals and interest rates. 

• Access to Services: Some banking services or perks may be contingent on maintaining a specific minimum balance. 

• Avoiding Penalties: Falling below the minimum balance may lead to penalties or additional charges, affecting overall account profitability. 

• Relationship with the Bank: Consistently meeting the minimum balance requirement fosters a positive relationship with the bank, potentially leading to better service. 

In conclusion, maintaining a minimum balance in a savings account is a prudent financial practice with many advantages. It unlocks various benefits for account holders, such as reduced fees, higher interest rates, or access to premium banking services. This incentivises customers to keep a stable balance, creating a cordial relationship between account holders and the bank.  Acknowledging the importance of adhering to these requirements is pivotal for individuals seeking effective financial management and maximising the advantages associated with savings accounts. 

Also Read: How to Calculate your Savings Account Interest. 

FAQs: 

1.  What are the penalties levied when the minimum balance in an account is not maintained? 

Yes, many banks impose penalties or charges for not maintaining the minimum or negative balance in the savings account. The specific fees and penalties may vary widely among different banks. 

2. How is the minimum balance required derived for any savings account? 

First, add all the monthly closing balances to check what is the minimum balance required for your account. Then, divide it by the total number of days in the month. 

3. What are the advantages of maintaining the minimum balance in a savings account? 

Minimum balance maintenance in a savings account offers benefits such as avoiding monthly fees, ensuring eligibility for perks, and fostering a positive banking relationship. It contributes to financial stability and grants access to essential services. 

4. If a customer goes below the minimum balance requirement, can they still earn interest on it? 

It depends entirely on the bank’s policies. Few banks may instruct you to maintain a minimum balance to earn interest. 

Disclaimer:  The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author 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.