The average daily balance (or daily average balance) is calculated by adding the ending balances of each day for a defined number of days (usually 30 days for credit card calculations) and dividing it by that total number of days.
For example:
- Ending balance for Day 1: $1000.00
- Ending balance for Day 15: $2000.00 (because you bought some things worth $1000 on this day)
- Ending balance for Day 20: $1500.00 (because you paid off $500 on this day)
The above example would really look like this:
| Day | Balance |
|---|---|
| 1 | $1000.00 |
| 2 | $1000.00 |
| 3 | $1000.00 |
| 4 | $1000.00 |
| 5 | $1000.00 |
| 6 | $1000.00 |
| 7 | $1000.00 |
| 8 | $1000.00 |
| 9 | $1000.00 |
| 10 | $1000.00 |
| 11 | $1000.00 |
| 12 | $1000.00 |
| 13 | $1000.00 |
| 14 | $1000.00 |
| 15 | $2000.00 |
| 16 | $2000.00 |
| 17 | $2000.00 |
| 18 | $2000.00 |
| 19 | $2000.00 |
| 20 | $1500.00 |
| 21 | $1500.00 |
| 22 | $1500.00 |
| 23 | $1500.00 |
| 24 | $1500.00 |
| 25 | $1500.00 |
| 26 | $1500.00 |
| 27 | $1500.00 |
| 28 | $1500.00 |
| 29 | $1500.00 |
| 30 | $1500.00 |
| Total | $40,500.00 |
Now divide the total ($40,500.00) by the total number of days (30) and you get an average daily balance of $1,350.00 which is what your credit card company will calculate your credit card interest against.
To make your life easier, I have created an average daily balance calculator.