How to Calculate Average Monthly Balance on Checking Account

The average monthly balance on a checking account is a key metric used by banks to determine interest earned or fees charged. It's calculated by averaging the daily balances over a 30-day period. This guide explains how to calculate it accurately and what it means for your finances.

What is Average Monthly Balance?

The average monthly balance is the sum of all daily balances in a month divided by the number of days in that month. Banks use this calculation to determine interest earned or fees charged on your account. For example, if you have a savings account that earns interest, the bank will calculate interest based on your average monthly balance.

Banks typically calculate the average monthly balance using the sum of daily balances divided by the number of days in the month. Some banks may use a different method, so it's important to check with your financial institution.

Why Is It Important?

The average monthly balance is crucial for several financial reasons:

Interest Calculation: Many savings accounts and certificates of deposit (CDs) pay interest based on the average monthly balance.
Fee Assessment: Some banks charge fees based on the average monthly balance, particularly if the balance falls below a certain threshold.
Financial Planning: Understanding your average monthly balance helps you track your financial health and plan for future expenses.

How to Calculate Average Monthly Balance

Calculating the average monthly balance involves these steps:

Record your account balance at the end of each day for the month.
Sum all the daily balances for the month.
Divide the total by the number of days in the month.

Formula

Average Monthly Balance = (Sum of Daily Balances) / (Number of Days in Month)

Step-by-Step Guide

To calculate your average monthly balance:

Obtain a statement or record of your daily account balances for the month.
Add up all the daily balances.
Count the number of days in the month.
Divide the total of daily balances by the number of days.

Most months have 30 or 31 days, but February has 28 days (or 29 in a leap year). Ensure you use the correct number of days for the month you're calculating.

Example Calculation

Let's walk through an example to illustrate how to calculate the average monthly balance.

Example Scenario

Suppose you have a checking account with the following daily balances for a 30-day month:

Day	Balance ($)
1	1,000.00
2	1,050.00
3	1,100.00
...	...
30	1,200.00

For simplicity, let's assume the balances increase by $50 each day:

Calculation

Sum of daily balances = 1,000 + 1,050 + 1,100 + ... + 1,200 = 36,750

Number of days = 30

Average Monthly Balance = 36,750 / 30 = 1,225.00

In this example, the average monthly balance is $1,225.00.

Frequently Asked Questions

How often does my bank calculate my average monthly balance?

Most banks calculate the average monthly balance at the end of each month. Some may calculate it more frequently, so it's best to check with your financial institution.

Can I track my average monthly balance myself?

Yes, you can track your average monthly balance by recording your daily account balances and using the formula provided in this guide.

What if I don't have daily balance records?

If you don't have daily balance records, you can estimate your average monthly balance by using your monthly statements and tracking your deposits and withdrawals.

How does the average monthly balance affect my interest earnings?

The average monthly balance directly affects the interest you earn on savings accounts and CDs. A higher average balance typically results in higher interest earnings.