1. What is Average Daily Balance?

The Average Daily Balance (ADB) is a method used by banks and credit card companies to calculate finance charges by averaging the account balance over a specific period, typically a billing cycle.

2. How Does the Calculator Work?

The calculator uses the ADB formula:

Where:

• \( \sum(Daily\ Balances) \) — Sum of all daily balances in the period
• \( Days \) — Number of days in the billing cycle
• \( ADB \) — Average daily balance result

Explanation: The equation calculates the mean balance by dividing the sum of all daily balances by the number of days in the period.

3. Importance of ADB Calculation

Details: ADB is crucial for determining interest charges on bank accounts and credit cards, assessing account maintenance fees, and evaluating minimum balance requirements.

4. Using the Calculator

Tips: Enter the sum of all daily balances in your currency and the number of days in the billing period. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is ADB different from monthly average balance?
A: ADB calculates the exact daily average, while monthly average might use statement balances or other methods.

Q2: Why do banks use ADB?
A: It provides a fair method to calculate interest or fees based on actual daily account activity rather than just the ending balance.

Q3: How can I reduce my ADB for interest calculations?
A: Make payments earlier in the billing cycle and avoid large purchases near the end of the cycle.

Q4: Does ADB include pending transactions?
A: Typically no - only posted transactions are included in daily balance calculations.

Q5: How often should I calculate my ADB?
A: For credit cards, calculate it for each billing cycle. For bank accounts, calculate it whenever you need to verify interest calculations or fee assessments.