With the daily balance method, interest is calculated each day and added to a "bucket" for posting. At posting time, the bucket is emptied. Fractions of cents usually sit in the bucket for the next interest period's accumulation.
With the average daily balance method, interest is not calculated until it's time to post. The daily balance is added to a "bucket" each day. At interest calculation time, the total of the bucket amount is divided by the number of days in the interest period to arrive at the average daily balance. Then interest is calculated using that number.
For most accounts, the difference in the results between the two methods shouldn't amount to much. Any difference could be attributed to the rounding of fractional cents when using the daily balance method.
John S. Burnett
Fighting for Compliance since 1976
Bankers' Threads User #8