3-7 Average Daily Balance

Front

What is the Average Daily Balance (ADB)?

Back

The Average Daily Balance (ADB) is a method used to calculate the balance of an account over a specific period, typically a month, by averaging the daily balances.

Front

How is the Average Daily Balance calculated?

Back

To calculate the Average Daily Balance, sum the daily balances for each day in the billing cycle and then divide by the number of days in that cycle.

Front

What is a finance charge?

Back

A finance charge is the cost of borrowing money, typically expressed as a percentage of the outstanding balance, which can include interest and fees.

Front

What factors can affect the Average Daily Balance?

Back

Factors that can affect the Average Daily Balance include deposits, withdrawals, fees, and interest earned.

Front

What is the formula for calculating finance charges based on ADB?

Back

Finance Charge = Average Daily Balance x Monthly Interest Rate.

Front

What does a higher Average Daily Balance indicate?

Back

A higher Average Daily Balance may indicate more funds are held in the account, which can lead to higher interest earnings or higher finance charges.

Front

What is the significance of knowing your Average Daily Balance?

Back

Knowing your Average Daily Balance helps in understanding how much interest you may earn or how much finance charges you may incur.

Front

What is a transaction in the context of banking?

Back

A transaction is any activity that affects the balance of an account, such as deposits, withdrawals, or transfers.

Front

How can you improve your Average Daily Balance?

Back

You can improve your Average Daily Balance by making regular deposits and minimizing withdrawals.

Front

What is the impact of fees on Average Daily Balance?

Back

Fees can reduce the Average Daily Balance, leading to lower interest earnings or higher finance charges.