Understanding the Average Daily Balance (ADB) Dividend Calculation Method

This topic explains in more detail what data the system retains in order to pay dividends using the Average Daily Balance calculation method, and how the calculation is done to determine dividend amounts to pay.

First, there are a few terms you’ll need to understand:

Daily Processing: Accrual vs. ADB

Period average balance (Also referred to as Average Daily Balance or ADB)

Appears on the Account Inquiry screen.  Shows the average balance for the current dividend period.  Calculated as follows:

Accum. Balance ÷ Dividend Days Processed This Period = Period average balance

(Stored in MEMBERx as field CBAVGB.  Labeled as “Average Bal This Dividend Period (CBACBL/CBDPER)” when viewed via Query.)

Accum. Balance

 

Appears on the Account Info Update screen.  This field is a cumulative total of each day’s account balance for the entire dividend period (described in more detail below). This total is used by the system when calculating Average Daily Balance.

(Stored in MEMBERx as field CBACBL.  Labeled as “Cumulative Bal This Dividend Period” when viewed via Query.)

Dividend Days Processed This Period

Visible only via Query.  Stores the # of days in the current dividend period.  Incremented by one every day, including non-business days.*

(Stored in MEMBERx as field CBDPER.)

In a nutshell, with the two available Accrual calculation methods (Simple and Compound Daily), every night the system takes the CURBAL (current balance) at that moment and multiplies it by the daily rate and adds that amount to the accrued dividends bucket on the MEMBERx account.  At the end of the dividend period, the system simply pays the member whatever total is in that bucket. 

But with the Average Daily Balance calculation method, there is no daily accrual to the G/L, nor is any daily dividend amount calculated or stored on the account.  Instead, every night* the system takes the CURBAL (current balance) at that moment and adds it to the Accum. Balance bucket.  (By the end of a period, this can end up being a very large number, even on an account with a small balance!)  At the same time, it adds 1 to the Dividend Days Processed This Period bucket which tracks the number of days that will be used at the end of the period to figure the average.  (The system does not do anything related to calculating dividends or look at rates in any way during the nightly cycle for these products.)

For example:  

Day

Current Balance as of EOD

Amount in the Accum. Balance field

Monday

$1,000 (beginning of div period)

$1,000

Tuesday

$1,000

$2,000

Wednesday

$1,000

$3,000

Thursday

$1,000

$4,000

Friday

$1,200 ($200 deposit made during the day)

$5,200

Saturday

$1,200

$6,400

Sunday

$1,200

$7,600

Monday

$1,200

$8,800

...

And so on...

And so on...

Tuesday

$1,200 (end of div period)

$35,200

 

When dividends are calculated the system takes the final stored cumulative balance and the # of days in the period and calculates the average daily balance, like this:

$35,200 (accum. bal.) ÷  30  (days in period) = $1,173.33 (average balance)

 

That calculated Average Daily Balance amount ($1,173.33 in our example) is what is used as the “balance” in all subsequent calculations and evaluations that require the member’s balance – including choosing which rate to use, under a tiered-rate structure.

For more details about the available tiered-rate options and how they work with both accrual and ADB calculation methods, refer to the Pricing Strategies and CU*BASE Tools topic.

 

*For this situation, the system automatically takes into account weekends and holidays. On the first business day after a Sunday or holiday, the daily dividend accrual program determines the number of days since the last time the cumulative balance field was updated.  It then adds that number into the # of days counter, and also multiplies that number by the BOD balance to update the cumulative balance figure appropriately.

 

 

 

Link to ID: https://help.cubase.org/cubase/cubase.htm#Understanding_the_Average_Daily_Balance_(ADB)_Dividend_Calculation_Method.htm