How to calculate credit card interest
April 4, 2025
Thomas Fox, J.D.
thomas@foxparalegalservices.com
TEXT: 502-230-1613
https://blog.foxparalegalservices.com/
1. Start with a monthly account statement
2. Identify
a. Identify the interest charge balance types
If there is more than one balance type with a non-zero balance subject to interest, STOP. This method of calculating interest will not work.
b. Identify the number of days in the billing period. (typically 28, 29, 30, or 31 depending on the month)
c. Identify the Annual Percentage Rate (APR) applicable to the non-zero balance type (this is usually "purchases")
d. Identify the statement's opening and closing dates. (this should match up with the number of days in the billing period in b.)
e. Identify the statement's beginning balance. This is the ending balance from the prior period.
3. Create a spreadsheet with a column of sequential dates, starting with the last date of the prior billing period through the end of the current billing period. For example, if your account statement is for a billing period from May 1 through May 31, your spreadsheet will have 32 rows with dates beginning April 30 (the last date of the prior billing period) through May 31. NOTE: The beginning and ending dates of billing statements do not necessarily correspond to calendar months. The last day of the prior period is necessary for the interest charge not billed previously, and that is carried over to the current month.
4. This spreadsheet will have three columns: Transactions, Balance, and Interest.
5. Calculate the daily interest rate (DIR) to six digits of precision. (APR / 365) Enter this number in a cell above the date range in the interest column.
6. Enter the beginning balance at the top of the "Balance" column
7. In the first cell of the "Interest" column, enter the daily interest calculation formula. (Daily Interest = DIR * Balance See spreadsheet example below)
8. For each day of the billing period (current date), add all debits (new purchases and fees) and credits (payments as NEGATIVE numbers) and enter each net sum to the appropriate cell in the "Transactions" column.
9. For the first date of the billing period, enter the following formula in the "Balance" column: Prior day balance + current date's transactions + prior date's interest. (See spreadsheet example below)
10. Copy and paste the interest calculation from the prior date into the current date's "Interest" cell.
11. Copy and paste both "Balance" and "Interest" cell formulas to each of the remaining dates in the billing period.
12. For the last day of the period, enter zero "0" for the daily interest.
13. Sum the balance column and the interest column, respectively.
14. The sum of the interest column equals the total compounded interest for the period (the interest for the last day is carried forward to the next month) using the Daily Balance method.
15. The sum of the balance column divided by the number of days in the period equals the Average Daily Balance (ADB) for the period. The [ADB] times the [daily interest rate] times the [number of days] equals the total interest for the period using the Average Daily Balance method.
16. These numbers should match the numbers on your credit card statement.
Excel spreadsheet example with formulas
Interest Calculation Instructions
from Chase VISA Cardholder Agreement
Interest Charges
Daily Interest Rates and Annual Percentage Rates may be found on the Rates and Fees Table.
Periodic Interest Charge Calculation — Daily balance method (Including new transactions):
We calculate a daily balance for each type of transaction and use the daily balances to determine your interest charges.
We figure the “daily balance” for each transaction type as follows:
• We take the beginning balance for each day and add
- any interest charge from the prior day (known as compounding of interest) and
- any new transactions or other debits (including Annual Membership Fees, transaction fees, Penalty Fees, any other fees and unpaid interest charges).
• We subtract payments or credits, and treat any net credit balance as a zero balance.
• The result is the daily balance for each type of transaction.
We figure the interest charges on your account as follows:
• To get the daily interest rate for each type of transaction we divide the APR by 365. We may combine different transaction types that have the same daily interest rates.
We multiply the daily interest rate by the daily balance for each transaction type for each day in the billing cycle.
• We add together the interest charges for each day in the billing cycle for each transaction type.
• If any interest charge is due, we will charge you at least the minimum interest charge shown on the Rates and Fees Table.
We add transactions and fees to your daily balance no earlier than:
• For new purchases, balance transfers, cash advances, or My Chase Loans – the date of the transaction.
• For new cash advance checks or balance transfer checks – the date the payee deposits the check.
• Fees – either on the date of a related transaction, the date they are posted to your account, or the last day of the billing cycle, whichever we may choose.
The Balances Subject to Interest Rate for each type of transaction shown on your billing statement is the sum of the daily balances for that type of transaction divided by the number of days in the billing cycle.
We may use mathematical formulas that produce equivalent results to calculate the Balance Subject to Interest Rate, interest charges and related amounts.
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