Daily interest on credit cards

Resources · Cards, loans and credit · 5 min read Advanced

Key points

• Many cards charge interest using a daily rate: the APR divided by 365 (or sometimes 360).
• That daily rate hits your balance every day, often through an average daily balance.
• Because every day counts, when you pay and when you spend changes the interest.
• Over a month, the result lands close to the simpler “APR ÷ 12” method.

On a daily interest credit card, the yearly rate gets sliced into a tiny daily rate, and that’s charged on your balance every day of the statement period. At 20% a year, that’s about 0.0548% a day. On a $3,000 balance, roughly $1.64 a day.

Most guides, ours included, use a monthly rate to keep examples simple. This one shows what’s happening underneath on cards that work daily. If you’d like the quick monthly version first, read how to calculate credit card interest.

The daily rate

Your daily rate is your APR divided by the number of days in a year. So 20% ÷ 365 = 0.0548% a day (rounded). Some providers use 360 days instead, which nudges the daily rate slightly higher.

On its own, that number looks like nothing. But it’s applied every single day. Over a year it adds up to the full yearly rate.

Daily interest credit card maths: the average daily balance

Your balance rarely sits still for a month. You spend, you pay. Many cards deal with that using an average daily balance, and the method goes like this:

1. Write down the balance at the end of each day in the statement period.
2. Add them up and divide by the number of days.
3. Multiply that average by the daily rate, then by the number of days.

For the example below, assume a 20% APR, a 365-day year and a 30-day statement period. You’ve carried a balance from last month, so there’s no interest-free period on purchases. Interest is worked out on the average daily balance at the end of the period, without compounding daily. The same maths works in any currency.

Scenario A: pay late in the month

Average daily balance: ($3,000 × 10 + $3,600 × 10 + $2,600 × 10) ÷ 30 = $3,066.67.

Interest: $3,066.67 × 20% ÷ 365 × 30 = $50.41.

Scenario B: same payment, made on day 1

Average daily balance: $2,400. Interest: $39.45.

Same payment. Same purchase. Same month. Paying 20 days earlier cut the interest by $10.96, simply because the balance was lower for more of those days.

How close is daily to monthly?

Here’s one month on a steady $3,000 balance at 20%, worked out a few different ways:

Not much in it. On a balance this size, the gaps are usually under a couple of dollars a month. So the monthly method is still a perfectly good way to understand and estimate card interest, even on a card that calculates daily.

Daily compounding

Some cards add each day’s interest straight onto the balance. Tomorrow’s interest is then charged on today’s interest too. That’s daily compounding. Other cards tally up the daily interest and add it once, at the end of the statement period.

Over a single month, the difference is cents. Over a year on a big balance it grows a little. Your card’s terms will say which method yours uses, usually in a section about how interest is calculated.

What daily interest means in practice

Every day counts. That has a few knock-on effects.

Paying earlier lowers your average balance, so it lowers the interest. Some people split their payment for this reason, sending part as soon as they’re paid and the rest by the due date.

A big purchase late in the cycle only counts for a few days in that period. Don’t be fooled, though. If it isn’t paid off, it counts in full next month.

Cash withdrawals are their own beast. They often start collecting daily interest from the day you take them, with no interest-free period at all. See cash advances: why they cost more.

And interest-free periods usually only apply when the full statement balance is paid by the due date. Carry a balance and daily interest often applies to new purchases as well.

None of this changes the big picture. The size of the balance and the rate matter most. Timing is the fine-tuning.

Common questions

How do I calculate daily interest on a credit card?

Divide the APR by 365 to get the daily rate. Then multiply that by your average daily balance and by the number of days in the statement period.

Is credit card interest charged daily or monthly?

Many cards calculate it daily and add it to your account once a month. Some calculate it monthly. Your card’s terms tell you which.

Does paying my credit card early reduce interest?

If you’re carrying a balance on a card that uses a daily balance, yes. A lower balance on more days means a lower average, and less interest.

Try it

The credit card payoff calculator shows how long your balance would take to clear at different payments. To see all your debts together, find your Freedom Date.

General information only, not financial advice. Your situation is your own.