Simple English definitions for legal terms
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Daily balance refers to the amount of money in an account at the end of each day. This is important because it determines how much interest is accrued or paid on the account. Average daily balance is the average amount of money in an account over a certain period of time, and is used to calculate interest or finance charges. Essentially, daily balance is the final accounting for a day, while average daily balance is the average amount over a period of time.
Daily balance: The final accounting for a day on which interest is to be accrued or paid.
Average daily balance: The average amount of money in an account (such as a bank account or credit-card account) during a given period. This amount serves as the basis for computing interest or a finance charge for the period.
For example, if you have a bank account with a balance of $1000 on Monday, $2000 on Tuesday, and $1500 on Wednesday, the daily balance for each day would be $1000, $2000, and $1500, respectively. The average daily balance for the three-day period would be $1500 ((1000+2000+1500)/3).
Another example would be a credit card account with a balance of $500 on Monday, $1000 on Tuesday, and $0 on Wednesday. The daily balance for each day would be $500, $1000, and $0, respectively. The average daily balance for the three-day period would be $500 ((500+1000+0)/3).
These examples illustrate how the daily balance and average daily balance are calculated for different types of accounts. Understanding these balances is important for calculating interest or finance charges accurately.