Average Balance
Barron's Finance & Investment Dictionary:
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Average Balance
method for computing interest or finance charges on bank deposit accounts, credit cards, and charge accounts. Deposit accounts use the daily closing balance divided by the number of days in the period and apply the interest rate to that. Credit and charge cards divide the balances owed each day by the number of days and apply the finance charge. The average daily balance method, widely used by department stores, is less favorable to the consumer than the adjusted balance method used for interest earned on bank deposit accounts but more favorable than the Previous Balance Method used by most credit cards.
| Average Cost, Average | |
| Average Directional Index (ADX), Average Down |
Investopedia Financial Dictionary:
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Average Balance
The balance on a loan or depositary account. A simple average balance is calculated by dividing the beginning balance plus the ending balance by two.
A weighted average balance will take into account how long the balance remained at specific levels during the measurement period, which is typically a month or a financial quarter long.
Investopedia Says:
Average balance is more commonly used when referring to an average daily balance, particularly when charging interest on loans. Since banks are not permitted to charge interest on interest, any payments are applied first to interest payments due, and then to principal.
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.
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Barron's Finance & Investment Dictionary
Dictionary of Finance and Investment Terms. Copyright © 2010 by Barron's Educational Series, Inc. All rights reserved.
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Mentioned in
Average Outstanding Balance
(in banking)
Internal Capital Generation Rate
(in banking)
Minimum Balance
(in banking)
Compensating Balance
(business term)
Compensating Balance or Compensatory Balance
(finance term)
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