Calculating Monthly Average Balance from Base Interest
When dealing with bank accounts that offer base interest rates, you might find yourself in a situation where you know exactly how much base interest you earned, but need to figure out what monthly average balance (MAB) is required to achieve that goal especially you are kiasu and kan chiong on 1st of the month because the prior month MAB numbers aren't published yet. So yes, this article is for the anxious ones.
This reverse calculation is particularly useful when planning your finances or determining how much money to keep in different accounts to optimize your returns.
Understanding the Base Interest Formula
Most Singapore banks calculate base interest using this formula:
Base Interest = MAB × 0.05% ÷ 365 × Number of Days in Month
To reverse-engineer the required MAB from a target base interest amount, we rearrange the formula:
MAB = (Base Interest × 365) ÷ (0.05% × Days in Month)
Practical Example
Let's say you want to earn $6 in base interest for the month of May (31 days):
- Start with the target: $6 base interest
- Apply the formula: MAB = ($6 × 365) ÷ (0.0005 × 31)
- Calculate: MAB = $2,190 ÷ 0.0155 = $141,290.32
Interactive Calculator
Use this calculator to determine your monthly average balance from any base interest amount:
Base Interest to Monthly Average Balance Calculator
Monthly Average Balance: $141,290.32
For July (31 days)
Base interest rate: 0.05% per annum
Formula Breakdown:
Step 1: Daily base interest = $6.00 ÷ 31 days = $0.1935
Step 2: Annualized base interest = $0.1935 × 365 days = $70.65
Step 3: Monthly Average Balance = $70.65 ÷ 0.05% = $141,290.32
Key Considerations
Interest Rate Variations
This calculation assumes the standard 0.05% base interest rate common among Singapore banks. Different banks or account types may have varying base rates.
Practical Application
Remember that maintaining the exact calculated MAB might require:
- Careful timing of deposits and withdrawals
- Understanding of how your bank calculates daily balances
- Consideration of other account requirements or benefits
Related Tools
If you're working with specific bank requirements, check out these related calculators:
This reverse calculation method empowers you to make informed decisions about your banking strategy and helps ensure you're maximizing your returns while meeting your financial goals.