Average balance for the past six months (average balance calculation)....

[Nick89]

I am quite confused about the average balance calculation.

If my bank account shows something like the following,

 April 22 nd , 2017 – May 22 nd , 2017: $ 120 (closing balance on May 22 nd , 2017)

 March 22 nd , 2017 – April 22 nd , 2017 : $ 120 (closing balance on April 22 nd , 2017)

 February 22 nd , 2017 – March 22 nd , 2017: $ 40 (closing balance on March 22 nd , 2017)

 January 22 nd , 2017 – February 22 nd , 2017: $ 30 (closing balance on February 22 nd , 2017)

 December 22 nd , 2016 – January 22 nd , 2017: $ 30 (closing balance on January 22nd, 2017)

 November 22 nd , 2016 – December 22 nd , 2016: $ 10 (closing balance on December 22nd, 2016)


How do I calculate the average balance for each month?. Currently, I have taken the closing balance on May 22nd, 2017 as the average balance for the period of April 22nd, 2017 - May 22nd, 2017. Do I need to consider the balance after each transaction and find the average of all these in that period?

How about the 6 month average balance?. Is it the average of month end balance for 6 months?

Please Help..

Thank You

 

[vishalg]

I am quite confused about the average balance calculation.

If my bank account shows something like the following,

 April 22 nd , 2017 – May 22 nd , 2017: $ 120 (closing balance on May 22 nd , 2017)

 March 22 nd , 2017 – April 22 nd , 2017 : $ 120 (closing balance on April 22 nd , 2017)

 February 22 nd , 2017 – March 22 nd , 2017: $ 40 (closing balance on March 22 nd , 2017)

 January 22 nd , 2017 – February 22 nd , 2017: $ 30 (closing balance on February 22 nd , 2017)

 December 22 nd , 2016 – January 22 nd , 2017: $ 30 (closing balance on January 22nd, 2017)

 November 22 nd , 2016 – December 22 nd , 2016: $ 10 (closing balance on December 22nd, 2016)


How do I calculate the average balance for each month?. Currently, I have taken the closing balance on May 22nd, 2017 as the average balance for the period of April 22nd, 2017 - May 22nd, 2017. Do I need to consider the balance after each transaction and find the average of all these in that period?

How about the 6 month average balance?. Is it the average of month end balance for 6 months?

Please Help..

Thank You

Typically banks have their own way of computing average ( auto computed in their core banking system) and they take daily averages while calculating monthly averages. CIC hasn't shared a formula to compute averages so a simple average using 'month start' and 'month end' will be fine. I.e {(month start amount) + (month end amount)}/2
It will be like this
Current Balance ( as of date)- $xxxxxx
Avg. Balance month 1( April) - $zzzzz
...........
...........
Avg. Balance month 6 (November 2016) - $aaaaaa

 

[Wolverine17]

Do they calculate daily or monthly

 

[vishalg]

Do they calculate daily or monthly

It is up to the bank. I used letters from 3 banks and all of them had their system generated averages ( automatically computed) which were printed on the letter.
CIC just looks at the average and figures out if there is a substantial difference between two months and whether those credited funds belong to you and also looks for the source of the funds.

 

[picklee]

Typically banks have their own way of computing average ( auto computed in their core banking system) and they take daily averages while calculating monthly averages. CIC hasn't shared a formula to compute averages so a simple average using 'month start' and 'month end' will be fine. I.e {(month start amount) + (month end amount)}/2
It will be like this
Current Balance ( as of date)- $xxxxxx
Avg. Balance month 1( April) - $zzzzz
...........
...........
Avg. Balance month 6 (November 2016) - $aaaaaa

This is not a very good way to calculate the average monthly balance.

For example, if you had $100 in your account on May 1, then $1000 deposit on May 2, then $1050 withdrawal on May 30, your ending balance on May 31 would be $50. By the calculation you provided, this would yield a $75 average for the month $100+$50/2), but we know most of the month, you had more than $1000 in the account.

This is why you need what's called a weighted average. It's a bit more complicated to calculate, but is a truer representation of what was in your account for a given month.

Here's how to calculate it. Take your starting balance in May, $100 in our example, and multiply it by the number of days you held that balance divided by the total number of days in the month. We only had $100 in there for one day (May 1) and there are 31 days in May, so the calculation would be

$100 * (1/31) = $3.2258

It is a good idea to carry a few decimal places, because these small transactions add up over 6 months.

Continue the above calculation for all balances in your statement for the month then add all those values together to get the weighted average monthly balance. For our example, this would look like

$100 * (1/31) = $3.2258
$1100 * (29/31) = $1029.0323
$50 * (1/31) = $1.6129

$3.2258 + $1029.0323 + $1.6129 = $1033.87

In this example, the actual average monthly balance was $1033.87. Obviously, this becomes more complicated if your balance is changing every day, but you could also estimate this number by taking the ending balance on the Sunday of every week, multiply that value by (7/31) and add all the weekly numbers together.

Hope that helps!

 

[chente]

It is acceptable to provide last 6 months bank statements together with the bank letter (Bank letter does not include the average)?

 

[vishalg]

This is not a very good way to calculate the average monthly balance.

For example, if you had $100 in your account on May 1, then $1000 deposit on May 2, then $1050 withdrawal on May 30, your ending balance on May 31 would be $50. By the calculation you provided, this would yield a $75 average for the month $100+$50/2), but we know most of the month, you had more than $1000 in the account.

This is why you need what's called a weighted average. It's a bit more complicated to calculate, but is a truer representation of what was in your account for a given month.

Here's how to calculate it. Take your starting balance in May, $100 in our example, and multiply it by the number of days you held that balance divided by the total number of days in the month. We only had $100 in there for one day (May 1) and there are 31 days in May, so the calculation would be



It is a good idea to carry a few decimal places, because these small transactions add up over 6 months.

Continue the above calculation for all balances in your statement for the month then add all those values together to get the weighted average monthly balance. For our example, this would look like



In this example, the actual average monthly balance was $1033.87. Obviously, this becomes more complicated if your balance is changing every day, but you could also estimate this number by taking the ending balance on the Sunday of every week, multiply that value by (7/31) and add all the weekly numbers together.

Hope that helps!

I was suggesting that if you have to do it then you can just go ahead with simple average. But usually banks go with daily averages ( day start) and ( day close) and use these daily averages for Computing monthly average.
Since CIC hasn't shared their preferred way of computing averages you can go ahead with any which way the banks decide.
Some people have just shown the closing balances at the end of the month

 

[vishalg]

It is acceptable to provide last 6 months bank statements together with the bank letter (Bank letter does not include the average)?

Yes, then you have to provide statements

 

[picklee]

I was suggesting that if you have to do it then you can just go ahead with simple average. But usually banks go with daily averages ( day start) and ( day close) and use these daily averages for Computing monthly average.
Since CIC hasn't shared their preferred way of computing averages you can go ahead with any which way the banks decide.
Some people have just shown the closing balances at the end of the month

Yes, monthly bank statements are usually sufficient.

With regards to OP's original question about calculating monthly average balance and for the benefit of people landing on this thread via search, you should absolutely not use the approach of a simple average of the first and last day balances of the month. Banks never would never calculate it that way and that approach greatly skews the estimated mean. In the example I gave, your method was off by 93%.

 

[vishalg]

Yes, monthly bank statements are usually sufficient.

With regards to OP's original question about calculating monthly average balance and for the benefit of people landing on this thread via search, you should absolutely not use the approach of a simple average of the first and last day balances of the month. Banks never would never calculate it that way and that approach greatly skews the estimated mean. In the example I gave, your method was off by 93%.

I am not refuting your methodology at all. I am just giving the OP options on how he could use the average to his favor as CIC hasn't fixed a criteria on that.
An applicant who has lower balance through months but higher in the start and end can benefit from a simple average. If the balance does not change through the month then any average would result in same figure. If there are frequent changes in the balance then your approach should be adopted.
Anyways, the bank will not give us the option to provide averages, they do that themselves.
Cheers and good luck to all.

 

[Wolverine17]

It is up to the bank. I used letters from 3 banks and all of them had their system generated averages ( automatically computed) which were printed on the letter.
CIC just looks at the average and figures out if there is a substantial difference between two months and whether those credited funds belong to you and also looks for the source of the funds.

My bank didnt provide an average balance thats why i am wondering how will cic calculate it

 

[vishalg]

My bank didnt provide an average balance thats why i am wondering how will cic calculate it

Upload the statements and don't worry about their calculation. They see averages just to check if there are significant differences between monthly averages. If you have sufficient proof of your ownership and trail of these significant credits ( within last 6 months) you don't need to worry about averages ( whether it is low or high).