1. What is the Bankrate Credit Card Interest Calculation?

The Bankrate method calculates credit card interest for a 30-day period using your average daily balance and annual percentage rate (APR). This is the standard method used by most credit card issuers to determine monthly interest charges.

2. How Does the Calculator Work?

The calculator uses the Bankrate equation:

Where:

• \( I \) — Interest charge for 30 days
• \( ADB \) — Average daily balance
• \( APR \) — Annual percentage rate (as decimal)
• 365 — Days in year
• 30 — Days in billing period

Explanation: The equation first converts APR to a daily rate, then multiplies by the average balance and number of days in the billing period.

3. Importance of Interest Calculation

Details: Understanding how credit card interest is calculated helps consumers make informed decisions about payments, balances, and choosing cards with lower rates.

4. Using the Calculator

Tips: Enter your average daily balance in dollars and APR as a percentage. For accurate results, use your actual average daily balance from your credit card statement.

5. Frequently Asked Questions (FAQ)

Q1: How is average daily balance calculated?
A: Add each day's ending balance, then divide by number of days in billing cycle. Most statements show this calculation.

Q2: Does this include compound interest?
A: Yes, credit cards typically compound interest daily, which is reflected in this calculation method.

Q3: Why 365 days instead of 360?
A: Most credit cards use actual-day (365/366) method rather than 360-day banking year.

Q4: How can I reduce my interest charges?
A: Pay your balance in full each month, make payments early in the cycle, or transfer to a lower-rate card.

Q5: Is this calculation accurate for all credit cards?
A: While most use this method, some may have different terms - always check your cardholder agreement.