MF-Query Board

I am currently holding four savings bank accounts of which three are the regular bank accounts (my previous salary accounts) and one is current salary account. For the first three bank accounts, I need to adhere to their minimum balance requirements. So, I wish to know how to calculate the minimum balance and whether I can utilise my savings into something productive like investing in mutual funds.

- Ravindra Krishnamurthy

As you might know, maintaining your bank account comes at a cost. This is the reason that there is a need to maintain a minimum average balance in your regular savings bank account. Failing to do so attracts a penalty charge. This penalty is usually charged to recover the cost for the bank to run its day-to-day operations.

Nevertheless, there is a zero-balance saving account available with almost all the banks, wherein you are waived from maintaining a minimum Monthly Average Balance (MAB). Even the corporate savings account like yours' is a zero-balance savings account with no requirement of maintaining the MAB. These accounts come with basic banking features and do have more transaction limits and charges when compared with regular savings bank account. However, salary account is an exception to the same. Being a regular savings account holder, MAB is taken into account to calculate interest and penalty.

How to calculate MAB?

The MAB is calculated by dividing the sum of the daily closing balance on your account by the number of days in a particular month. Usually, MAB requirement is anywhere between Rs.1,000 to Rs.10,000 on a regular savings bank account. This is decided by the banks depending up on the region where you stay. To understand it better, let us take an example. Let's assume that the MAB requirement is Rs.10,000.


Your MAB would be: Total daily closing balance (Rs.2,96,000) divided by the total number of days (31). Hence, your MAB comes to be Rs.9,548.39. So, as per this illustration, you were not able to maintain Rs.10,000 MAB.

To be able to maintain the minimum requirement of MAB, avoid having too many savings bank accounts. As in your case, you have three regular accounts which are not at all needed. So, it is advisable to close two out of three regular savings bank accounts. Else, most of the cash would get parked in them just to maintain the minimum MAB requirement, which is unproductive. Rather, it is better to close those saving bank accounts and park those funds in liquid mutual funds or ultra-short duration funds. Here, you may lose some of the liquidity easiness of savings bank, however, will earn better returns. 

I am a 50 year's old IT professional and would be retiring from the service in the next 10 years. Currently, I feel that my retirement is going to cost me more than what I might have accumulated. Hence, I have chances of outliving the assets I hold for my retirement. Thus, kindly guide me so that I can make my retirement more affordable.
- Kailash Bijlani 

Retirement is said to be probably the most expensive financial goals. This is due to the inflation effect that leads to such a huge cost of maintaining the current lifestyle. If one seeks to upgrade it then, the cost would be enormous. So, to answer your query, we have listed down some ways below to make your retirement more affordable so that you can really feel your golden years to be 'golden' enough.

Delay your retirement : The average age when a person retires is at the age of 60. However, if you are at a stage now where your retirement is not so far away, you may consider delaying your retirement. The benefit of delaying your retirement for 5 to 10 years would help you to have that added time to accumulate for your retirement. Further, if you don't want to delay your retirement at all and get rid of your job as soon as you turn 60, then consider having a part-time job which would give you joy. Say for instance, if you love music and are somewhat trained, then you can start teaching people for a fee. This would not just help you to pursue your hobby but also to earn something out of it.

Move from current city : For your work or job, currently, you might be staying in a metro city or the like. However, such cities do burn your pockets a lot as compared to some of the smaller cities. So, in such a case, to make your retirement a more affordable affair, consider switching to a comparatively smaller city. Say for instance, currently, you are staying in a metro city like Mumbai then consider moving to cities like Pune, Satara, etc. This will help you to curtail your cost of living. Not just that, it would also help you to maintain your health as you might get some fresh air with low pollution and population as compared to metro cities.

Health : Health is one of the major expenses that might pop up during retirement. Though we might be medically advanced, but such things increase the complexity of treatment. This in turn, leads to huge costs due to the risks involved. Even the medical insurance is costly. So, it is always better to plan in advance for such an emergency. Also, the most important thing is to take proper care of your health, which would help you to have minimum medical expenses. Not just that but taking care of your health would also help you to be at peace not just physically but also mentally.