What is an average daily balance?
Understand the Problem
The question is asking for the definition and perhaps the calculation method of an average daily balance, which is typically used in finance to assess account balances over a period of time.
Answer
A method to calculate credit card interest using the average balance over a billing period.
The average daily balance method calculates credit card interest by multiplying the average daily balance by the card's daily periodic rate and the number of days in the billing period.
Answer for screen readers
The average daily balance method calculates credit card interest by multiplying the average daily balance by the card's daily periodic rate and the number of days in the billing period.
More Information
The average daily balance method is significant as it can affect the amount of interest charged on a credit card or loan, making it a widely used calculation in personal finance.
Tips
Common mistakes include not accounting for all days within the billing period or misunderstanding how daily balances accumulate and affect overall interest.
Sources
- What is an average daily balance? - Investopedia - investopedia.com
- How to Calculate Average Daily Balance - Experian - experian.com
- Average Daily Balance Credit Card Calculator - NerdWallet - nerdwallet.com
