Daily balance: Overview, definition, and example
What is daily balance?
Daily balance refers to the amount of money in a bank account at the end of each business day, after all deposits, withdrawals, payments, and fees have been processed. It’s a running total that shows how much is available in the account on a given day.
This term often appears in banking agreements, loan documents, and interest calculations—especially when interest or fees are based on how much money is in the account each day.
Why is daily balance important?
The daily balance helps determine whether you meet minimum balance requirements, earn interest, or trigger fees on your business bank account or loan. For example, some banks charge a fee if your daily balance drops below a certain amount—even for one day.
It’s also used in loans and credit lines to calculate interest—often using the daily balance method, which adds up your balance each day and applies interest accordingly.
Knowing your daily balance helps you stay on top of cash flow and avoid surprises like unexpected charges or missed earnings.
Understanding daily balance through an example
Let’s say your business checking account earns interest if you keep a daily balance of at least $5,000. Here’s what happens in a given week:
- Monday: Balance = $5,200
- Tuesday: You pay a vendor $800 → Balance = $4,400
- Wednesday to Friday: Balance stays below $5,000
Because your daily balance dropped below $5,000 on Tuesday and stayed low the rest of the week, your account doesn’t earn interest for those days—and you may even be charged a low-balance fee, depending on your bank’s terms.
An example of a daily balance clause
Here’s how a daily balance clause might appear in a banking agreement:
“Interest shall be calculated using the daily balance method, which applies a daily periodic rate to the principal in the account each day. Fees may be assessed if the account’s daily balance falls below the minimum required threshold.”
Conclusion
Daily balance is a key figure that banks and lenders use to track how much money is in your account each day—and it can directly affect interest earnings, fees, and loan costs.
For SMBs, keeping an eye on your daily balance helps you manage cash flow more effectively and avoid avoidable charges. It’s a small detail that can have a big impact on your financial health.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.