Average Daily Balance Method

Average Daily Balance Method

An accounting method in which cost and interest owed on a good or service are calculated at the end of each day, rather than at the end of the month. Most credit cards calculate cost and interest on top of the balance at the previous pay period, but most department store cards use the average daily balance method. This theoretically reduces the amount one owes in interest on department store credit cards (though many charge higher rates of interest, canceling out the savings).