1. What is the Average Daily Balance?

The Average Daily Balance (ADB) is a method used by financial institutions to calculate interest charges or rewards on accounts. It represents the average amount of money in an account over a specific period.

2. How Does the Calculator Work?

The calculator uses the ADB formula:

Where:

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

Explanation: The equation calculates the average amount maintained in an account over a specific period by dividing the sum of daily balances by the number of days.

3. Importance of ADB Calculation

Details: Accurate ADB calculation is crucial for determining interest earnings on savings accounts, calculating finance charges on credit cards, and meeting minimum balance requirements for bank accounts.

4. Using the Calculator

Tips: Enter the total of daily balances in dollars and the number of days in the period. All values must be valid (daily balances > 0, days ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: How is ADB different from average balance?
A: ADB specifically refers to the average of daily balances over a period, while average balance might refer to different averaging methods depending on context.

Q2: Why do banks use ADB for interest calculation?
A: ADB provides a more accurate representation of the actual funds maintained in an account over time, making it fair for both the bank and the account holder.

Q3: How often should I calculate ADB?
A: Typically calculated monthly for credit card statements and quarterly or annually for savings account interest calculations.

Q4: Does ADB include weekends and holidays?
A: Yes, ADB includes all days in the calculation period, including weekends and holidays.

Q5: Can ADB be negative?
A: While technically possible with overdrawn accounts, most financial institutions have policies that prevent negative balances or charge fees for them.