What does Average daily balance mean?

The method by which credit cards calculate a credit card customer’s payment due is known as the average daily balance, or ADB for short. This is the amount used by banks to compute finance charges on credit card balances and interest on deposit balances.

The average daily balance is equal to the total balances in a specific month divided by the days in the month, for deposit accounts, while for credit cards it is a total of the opening balance of the day not counting the withdrawals, or purchases, adding any charges, and dividing it by the number of days in the billing period.