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Daily Average Balance Formula:
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Daily Average Balance (DAB) is a method used by financial institutions to calculate interest charges or payments on accounts. It represents the average balance in an account over a specific period, calculated by summing the daily balances and dividing by the number of days in the period.
The calculator uses the DAB formula:
Where:
Explanation: This calculation provides the average amount maintained in an account each day during the specified period, which is crucial for interest calculations and account maintenance requirements.
Details: Daily Average Balance is essential for determining interest earnings on savings accounts, avoiding monthly maintenance fees, calculating credit card interest charges, and meeting minimum balance requirements for various banking products.
Tips: Enter the total sum of daily balances in dollars and the number of days in the period. Ensure all values are positive and days are between 1-366.
Q1: How is DAB different from average balance?
A: DAB specifically calculates the average of daily closing balances, while average balance might refer to different time periods or calculation methods.
Q2: Why do banks use daily average balance?
A: Banks use DAB to fairly calculate interest and fees based on the actual amount maintained in the account throughout the period, rather than just the ending balance.
Q3: How can I improve my daily average balance?
A: Maintain consistent balances, avoid large withdrawals, and time deposits to keep funds in the account for longer periods.
Q4: Does DAB include weekends and holidays?
A: Yes, DAB includes all calendar days in the calculation period, including weekends and holidays.
Q5: How often is DAB calculated?
A: Typically calculated monthly for statement periods, but can be calculated for any specified time frame.