Explore commonly used personal finance terms.
The average daily balance is used by financial institutions, particularly in credit card accounts, to calculate interest charges over a billing period. This method involves adding the daily balances at the close of each day in the cycle and dividing by the total number of days. It provides a fairer interest assessment than only using the balance on one day. By calculating interest on the average balance, the method considers daily fluctuations, offering a more accurate picture of usage and fees.
