1. What is Average Daily Balance?

The Average Daily Balance (ADB) is a method used by financial institutions to calculate interest charges or account fees. It represents the sum of daily account balances divided by the number of days in the period.

2. How Does the Calculator Work?

The calculator uses the ADB formula:

Where:

• \(\sum \text{(daily balances)}\) — Sum of all daily account balances
• \(\text{days}\) — Number of days in the calculation period

Explanation: The formula calculates the average balance maintained in an account over a specific period, which is commonly used for interest calculations.

3. Importance of ADB Calculation

Details: Accurate ADB calculation is crucial for determining interest earnings on savings accounts, interest charges on credit cards, and maintaining minimum balance requirements to avoid fees.

4. Using the Calculator

Tips: Enter daily balances separated by commas (e.g., "100,150,200,175") and the number of days in the period. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is ADB different from simple average?
A: ADB specifically refers to the average of daily account balances over a period, while a simple average could refer to any set of values.

Q2: Why do credit card companies use ADB?
A: Credit card companies use ADB to calculate interest charges because it provides a more accurate reflection of your borrowing pattern throughout the billing cycle.

Q3: How can I increase my ADB for better interest?
A: Maintain higher balances consistently, avoid large withdrawals, and make deposits earlier in the period to maximize your average daily balance.

Q4: Does ADB include pending transactions?
A: Typically, financial institutions use posted transactions only when calculating ADB, but policies may vary between institutions.

Q5: How often is ADB calculated?
A: Most financial institutions calculate ADB monthly for statement periods, but it can be calculated for any time period depending on the purpose.