What is 'Average Balance'

The average balance is the account balance calculated over a chosen period of time based upon multiple closing balances over that period of time. Averages are most commonly calculated on a daily or monthly basis. An average daily balance adds the closing balances at the end of each day in a given period of time and divides the sum by the number of calendar days in that period. An average monthly balance sums the closing balance at the end of each day and divides it by the number of calendar days in the month. A simple average balance between a beginning and ending date is calculated by dividing the beginning balance plus the ending balance by two. 

BREAKING DOWN 'Average Balance'

Average daily balance is most commonly used by credit card companies in calculating a monthly finance charge. The interest rate is multiplied by the average daily balance. Average monthly balance is commonly used by banks to determine whether or not a client meets account balance minimums to avoid being charged account fees. Creditors use the average monthly balance to assess a borrower's income stability when assessing loan eligibility. Large fluctuations in average monthly balances of bank accounts can signal an inconsistent income stream or big swings in spending habits. These are things potential lenders can view as risky.

For investors who trade on margin accounts, the average balance may be used to determine margin requirements, or any margin calls that the brokerage makes.

  1. Average Daily Balance Method

    A credit card accounting method where interest charges are based ...
  2. Basic Balance

    Basic balance is an economic measure for the balance of payments ...
  3. Account Balance

    1. The amount of money in a financial repository, such as a checking ...
  4. Adjusted Balance Method

    The adjusted balance method is a method of accounting for financing ...
  5. Average Collected Balance

    The average collected balance is the balance of collected funds ...
  6. New Balance

    The new balance is the sum of the previous balance, payments, ...
Related Articles
  1. Personal Finance

    How to Transfer Credit Card Balances to a New Card

    Before you read that new credit card's zero percent interest balance transfer offer, see our guide to help save money and pay down your existing debt.
  2. Personal Finance

    How Credit Card Balance Transfers Work

    The pros and cons of credit card balance transfers.
  3. Investing

    What's a Trial Balance?

    A trial balance is a worksheet listing the debit or credit balances of all the ledger accounts for an entity. Under accounting theory, the total of all the debits must equal the total of all ...
  4. Investing

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  5. Insights

    The Balance Of Payments

    The "Balance of Payments" is a record of all payments or monetary transactions between a particular country and other nations during a specific time period. It provides a useful glimpse into ...
  6. Trading

    Forex Trading The U.S. Trade Balance Figures

    Those that are able to capitalize on this rather obscure report will benefit immensely from it.
  7. IPF - Banking

    Top Premium Checking Accounts of 2015

    Which banks offer the best deals for premium checking accounts – and what do you have to do to qualify for one?
  8. Investing

    Fidelity Investments' Average IRA, 401k Balances at Hit 6 Figures in Q4

    Fidelity Investments said that 401(k) and IRA account balances hit six figures for the first time in the fourth quarter as stocks surged.
  1. Which is more important to a nation's economy, the balance of trade or the balance ...

    Learn how to differentiate between the balance of trade and balance of payments for international trade and why the balance ... Read Answer >>
  2. Are balance transfers worth it?

    Balance transfers on credit cards are often a way to save a lot of money over the short and medium term. Read Answer >>
  3. Is a deficit in the balance of payments a bad thing?

    Discover how it might be possible to run a balance of payments deficit, what that means in terms of international trade and ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center