The Average Daily Balance is a method commonly employed by banks to compute interest charges, such as on credit card balances, when issuing monthly statements. It involves summing the amount owed on each day of the month and dividing by the number of days in the month.
Cleared for Value refers to the exact time when a credit to a customer's bank account is recognized for calculating interest and determining the undrawn balance of an agreed overdraft facility.
Compound interest refers to the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. It is a crucial concept in finance and investing, offering greater returns compared to simple interest.
Economic accrual of interest refers to the cost of an indebtedness for a given period, calculated by multiplying the period’s interest rate by the unpaid loan balance, including prior accrued interest.
The effective interest rate on a loan resulting from dividing the interest by the actual proceeds received. For instance, on a $1,000 discounted loan with a 10% interest rate, the net interest would be $100/$900 = 11.1%.
Ordinary interest is a type of simple interest calculated based on a 360-day year, as opposed to the 365-day year used in exact interest calculations.
Simple interest is a quick and easy method for calculating the interest charge on a loan or the interest earned on an investment, based on the principal amount, interest rate, and the time period involved.
