3-7 Average Daily Balance

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What is the Average Daily Balance (ADB)?

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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.

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How is the Average Daily Balance calculated?

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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.

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What is a finance charge?

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

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What factors can affect the Average Daily Balance?

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

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

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Finance Charge = Average Daily Balance x Monthly Interest Rate.

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What does a higher Average Daily Balance indicate?

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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.

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What is the significance of knowing your Average Daily Balance?

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

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What is a transaction in the context of banking?

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

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How can you improve your Average Daily Balance?

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

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What is the impact of fees on Average Daily Balance?

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

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