The average monthly balance is the average of the closing balances for each day in a given month or statement period. The words in the term often get mixed up, but banks use the term “average monthly balance” to define the result of calculations performed at the end of each month. Banks use the standard calculation for finding an average to determine the average monthly balance.
Banks calculate the average monthly balance by adding together each daily closing account balance throughout the month. The bank divides the sum of the daily account balances by the number of days in the month. For instance, the sum of your daily account balances is $1,345, which is divided by 30 for the number of days in April. The AMB is $48.33.
Many banks have minimum average balance requirements you must meet to prevent being assessed fees on bank accounts. Some banks use a combined average monthly balance from all of a customer’s accounts. Banks provide the AMB at the end of the month and after fees have been assessed. Banks usually do not provide daily or running tallies to help you avoid account fees.
Creditors use the AMB to look at your income and spending habits through fluctuations in your daily or monthly average balances. Some creditors look at income stability as reflected in the AMB for deposit accounts. For instance, the U.S. Department of Housing and Urban Development uses a six-month range of the AMB to represent the cash value of a mortgage applicant’s checking account when assessing asset income.
People sometimes use the terms ‘average monthly balance,” “average daily balance” and “monthly average balance” to refer to the same set of calculations. Some financial institutions use “monthly average balance” to refer to the average of an account’s closing balances at the end of each month throughout a given year. Ask about the term and the calculation used by your bank.
- Stockbyte/Stockbyte/Getty Images
- Is Homeowners Insurance Part of the Mortgage Monthly Payment?
- Budgeting for Homeowners
- How to Calculate the Most Expensive House You Can Buy
- What Does an Annual Disclosure Notice to Mortgagors Mean?
- What Will a Mortgage Holder Do When You Are Late on a Forbearance?
- How to Make an Amendment to a Land Contract
- Reasons to Buy a House
- Who Guarantees My Mortgage?
- How Much of Your Monthly Income Should Be Set Aside for Repairs When Buying a Home?
- Biweekly vs. Monthly Mortgage