What Is Account Balance? (Definition, Types And Examples)

By Indeed Editorial Team

Published 21 September 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

An account balance displays the amount of money an individual holds in an account or the amount of money they owe, whether that is a credit card account or a bank account. It is crucial to track the balance of an account as it can help you manage finances. Learning about various types of accounts can be beneficial for you as it can help you in making informed choices. In this article, we examine what account balance means, various types of balances, how bank balance differs from available credit and provide examples.

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What Is Account Balance?

Account balance or bank balance refers to the amount of money remaining in a bank account after considering all credits and debits. It can also mean the sum of money a person or an organisation owes to a third party, like a service provider. To get information regarding the balance on any of your accounts, you can contact the bank by email, in person, through their online app or by phone. You also can set up automatic text or email alerts to inform you of changes to your balance.

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Different Types

There are various types of financial accounts that require an account balance. Here are some examples:

  • Bank balance: It refers to the total amount a person or an organisation holds in their savings or checking account after recording all deposits and credits, deducting charges and paying off debts. The amount in a bank account does not always precisely reflect the balance because some unpaid debts still need calculations.

  • Loan balance: Any type of debt, such as one for a vehicle or an education, falls under this balance category. For instance, a mortgage account is a different type of account balance since a borrower receives a sizeable sum of money to purchase a property and normally pays off the loan over a long period of time.

  • Credit card balance: It displays the total amount an account holder owes, including any past-due balances and any interest charges. ‘Available credit' refers to the amount that an owner of a credit card may use at any specific time after deducting all of their debt.

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What Are The Primary Uses Of Bank Balance?

These are some uses for calculating bank balance:

  • It shows you current, accessible information about how much money you hold.

  • It offers a convenient way to manage cash flow in and out of an account while keeping track of all transactions.

  • If a previous incoming or outgoing payment needs verification, keeping track of the balance is an efficient way to do it.

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How Is Bank Balance Different From Available Credit?

A bank places a limit on the amount you can spend with a credit card, which is the maximum balance that it can hold. If purchases are less than your credit limit, you can still use your available credit to make purchases. Available credit refers to the sum of money you have access to for making purchases. Your available credit is the maximum amount you can spend at any particular time, but the balance on a credit card shows the difference between the money you spend and the money you put in through credit card payments.

To calculate available credit, deduct the current balance from the entire credit limit and consider any unpaid charges that are not yet reflected on the balance. The more charges you have on an account, the less credit you have left. Some charges might only be in effect temporarily, affecting your available credit. A hotel reservation that places a set amount of money on your credit card is an example of that. The hotel reimburses the initial amount reserved on your credit card when a different source pays for the room, boosting your available credit.

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Examples Of Bank Balance Calculations

These are two examples of bank balance calculations:

Example 1: A bank account holder starts with a bank balance of ₹40,00,000. They make a payment of ₹1,60,000 that the bank is yet to process. The account holder receives a payment of ₹2,40,000 additionally. Although their balance after receiving the payment is ₹40,00,000 + ₹2,40,000 = ₹42,40,000, the amount of money that is available for withdrawal is actually ₹40,00,000 + ₹2,40,000 - ₹1,60,000 = ₹40,80,000, because their bank has already blocked the money they owe as a pending transaction.

Example 2: A credit card holder has a credit limit of ₹80,000. They make purchases worth ₹800, ₹20,000 and ₹4000, but also use cash to pay off a ₹12,000 hotel reservation that they made using the credit card and the money returns to their credit balance. Their balance shows an accumulated debt of ₹800 + ₹20,000 + ₹4000 - ₹12,000 = ₹12,800. You can then calculate the available credit by subtracting ₹12,800 of net spending from the total initial available credit of ₹80,000, resulting in a current available credit of ₹67,200.

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Tips For Increasing Bank Balance

You can enhance your lifestyle, expand your employment options and advance professionally by maintaining a healthy bank balance. You can implement several critical measures to enhance your financial standing. Some of them include:

  • Paying off debts: The best approach to enhancing your net worth is by paying off debts and you can achieve this by adjusting your spending to pay higher than the minimum payment on a vehicle loan or student loan debt. You can alter the payment plan to weekly or bi-monthly to help you concentrate on paying off your debts as quickly as possible.

  • Spending less: Although it can be challenging, cutting back on your expenditures is one of the best methods to boost your net worth. A leaner budget, cutting back on credit card use and discontinuing subscriptions are all excellent strategies to reduce spending and enhance your bank balance.

  • Earning some extra money: Putting in extra hours, taking on freelance jobs, and selling unwanted valuables are all viable choices for generating extra cash that can assist you in enhancing your balance. You may also be able to use more of your primary earnings to pay off debts if you have some extra sources of income.

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Types Of Bank Accounts

The following are the various types of bank accounts you can consider while choosing one for yourself:

  • Current account: A current account is a type of account that works best for entrepreneurs, business owners and traders as they often work with large funds. These accounts offer features like an overdraft facility and they are typically zero-interest-bearing accounts.

  • Savings account: A savings account is a regular deposit account with a minimum interest rate. In this type of bank account, there is typically a cap on the number of transactions you can make per month.

  • Salary account: You can set a salary account as an agreement between the bank and your employer. At the start of the pay cycle, the bank credits salaries for each employee in this account.

  • Fixed deposit account: With a fixed deposit (FD) account, you can store away a particular amount of money and earn a predetermined rate of interest until the expiry of the fixed deposit. Maturity periods for FDs can range from seven days to ten years.

  • Recurring deposit account: The tenure of a recurrent deposit (RD) is preset and to earn interest, you put a set amount of money into it regularly, such as once per month or every three months. In contrast to FDs, where a lump sum deposit is required, the amount you are required to invest in an RD is usually lower and on a more regular basis.

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