The daily balance method is going to accrue interest EACH DAY based on the balance in the account EACH DAY. The average daily balance will accrue interest at the end of the month based on the average balance for the month. Like Mac, I've generally seen the daily balance method used.
What trips folks up quite often, however, is disclosing that interest will accrue on the daily ledger balance, but paying interest based on the daily collected balance, or assessing a maintenance fee because the daily collected balance was less than a minimum, when the disclosures stated the fee would be waived if a particular daily ledger balance was maintained.
To specifically answer your question, you would divide the interest rate by the number of days in the year and apply that daily rate to the balance for each day in the period to recalculate the daily balance method, whereas you would multiply it (the daily rate) by the number of days in the period and apply that (the monthly rate) to the average balance for the period using the average daily balance method.