As an Indian saver, it’s essential to keep track of your finances and make informed decisions about your money. One crucial aspect of managing your savings is understanding your average monthly balance in your savings account. Through this article, we will delve into what this means, why it matters, and how to calculate it. Additionally, we’ll explore the benefits of maintaining a healthy Average Monthly Balance and provide tips on how to optimise yours.
What is the Average Monthly Balance?
Average monthly balance refers to the sum of all daily balances in your savings account over a specific period, usually a month, divided by the number of days in that period. This calculation provides an average balance that represents the amount of money that was in your account throughout the month. It’s important to note that this figure includes both the principal amount and any interest earned.
Why is Average Monthly Balance Important?
Knowing your average monthly balance is vital for several reasons. Firstly, it helps you understand your spending habits and identify areas where you can cut back on unnecessary expenses. By analysing your average monthly balance, you can determine if you have enough funds to cover your regular expenditures, such as rent, bills, and groceries. If your Average Monthly Balance is consistently low, it may indicate that you need to adjust your budget or increase your income.
Secondly, a good average monthly balance can help you qualify for loans and credit facilities from banks and financial institutions. When assessing loan applications, lenders often look at an applicant’s average monthly balance to gauge their financial stability and ability to repay the loan. A higher average monthly balance indicates that you have a steady stream of income and are more likely to be considered a reliable borrower.
How to Calculate Average Monthly Balance?
Calculating your average monthly balance is straightforward. Follow these steps:
- Log in to your online banking platform or check your Bank Statement Online to access your account history.
- Identify the dates covered by the statement period, typically a month.
- Add up all the daily balances in your account during that period.
- Divide the total balance by the number of days in the statement period.
- The result is your average monthly balance.
For instance, let’s say your savings account had the following daily balances for January:
January 1 – ₹10,000
January 2 – ₹9,800
January 3 – ₹10,200
January 31 – ₹10,500
To calculate your average monthly balance, add up all the daily balances: 10,000 + 9,800 + 10,200 + … + 10,500 = 317,500. Then, divide the total by the number of days in the month: 317,500 / 31 = 10,206. That’s your average monthly balance for January.
Primary Benefits of Maintaining a Healthy Average Monthly Balance
Having a healthy average monthly balance offers several advantages. Here are some of them:
- Better Financial Planning: Knowing your average monthly balance helps you create a realistic budget and plan your finances effectively. With a clear picture of your spending patterns, you can allocate funds for various expenses, save for future goals, and avoid overspending.
- Loan Eligibility: As mentioned earlier, a good average monthly balance improves your chances of getting approved for loans and credit cards. Lenders view a consistent, high average monthly balance as a sign of financial responsibility and stability.
- Higher Interest Rates: Some savings accounts offer higher interest rates for accounts with higher average monthly balances. By maintaining a healthy balance, you can earn more interest on your savings and grow your wealth over time.
- Reduced Overdraft Fees: If you frequently dip below a certain balance threshold, you might incur overdraft fees. Keeping a cushion of funds in your account, equivalent to your average monthly balance, can help you avoid these charges.
Tips to Optimise Your Average Monthly Balance
Now that you know the importance of maintaining a
healthy average monthly balance, here are some tips to help you optimise yours:
- Monitor Your Spending
Regularly review your Bank Statement Online to identify areas where you can cut back on unnecessary expenses. This will help you free up more funds in your account, which will in turn boost your average monthly balance.
- Set Up Automatic Transfers
Consider setting up automatic transfers from your checking account to your savings account. This way, you’ll ensure that you regularly deposit funds into your savings account, thereby increasing your average monthly balance.
- Take Advantage of High-Interest Accounts
Look for savings accounts that offer higher interest rates for higher average monthly balances. By investing your funds in such accounts, you’ll not only earn more interest but also be motivated to maintain a healthy balance.
- Avoid Overdrafts
Be mindful of your spending habits and avoid dipping below your average monthly balance. This will not only save you from overdraft fees but also prevent damage to your credit score.
- Build an Emergency Fund
Aim to save three to six months’ worth of living expenses in your savings account. Having a cushion of funds will help you absorb unexpected expenses without depleting your average monthly balance.
- Utilise Budgeting Tools
Leverage budgeting apps or spreadsheets to track your income and expenses. These tools can help you stay on top of your finances and make adjustments to optimise
your average monthly balance.
Monitoring your average monthly balance is crucial to managing your finances effectively. By understanding your spending habits and making conscious decisions about saving, you can achieve financial stability and work towards your long-term goals. Remember, it’s easy to check your average monthly balance online, and taking steps to improve it can lead to significant benefits in the long run. So, take control of your finances today and watch your savings grow!