Average daily balance – Financial Terms

The interest you owe on your credit card or earn on a saving account may be calculated using the average daily balance. When a credit card company uses this method, it divides the balance you owe each day by the number of days in your billing cycle and multiplies the result by the finance charge to determine what you owe for the day. When a bank or credit union calculates what you’ve earned, it divides the amount in your account at the end of each day by the number of days in the period and multiplies the result by the interest rate.