Credit card interest calculation with the average daily balance

Step 1: from APR to the daily periodic rate

The APR (annual percentage rate) on a card is a yearly rate, but interest accrues daily. The daily periodic rate (DPR) is the APR divided by the days in the year: 23.99% ÷ 365 = 0.0657% per day. A few issuers divide by 360, which makes each day slightly more expensive. Your card agreement says which convention applies and usually shows the DPR next to the APR.

Cards often carry several APRs at once: one for purchases, a higher one for cash advances and a promotional one for balance transfers. Each balance type gets its own average daily balance and its own rate. The example has purchases only.

Step 2: the average daily balance

List the balance after every transaction and count how many days it lasted, from its date until the day before the next transaction. The last balance lasts until the end of the cycle including the last day, so its days are cycle end + 1 − date. The days must add up to the length of the cycle, 31 here.

Multiply each balance by its days, add the products and divide by the days in the cycle: =SUMPRODUCT(D2:D6,E2:E6)/31, or with a helper column as in the example. The balances weighted by days add up to $68,328.10, which gives an average daily balance of $68,328.10 ÷ 31 = $2,204.13. A plain AVERAGE of the five balances would be wrong, because it treats a balance that lasted 8 days the same as one that lasted 5.

Step 3: interest for the cycle

Interest = ADB × DPR × days in the cycle = $2,204.13 × 0.0657% × 31 = $44.91

Many issuers compound daily, which means each day's interest is added to the balance and earns interest itself from the next day on. Over one cycle that adds only a little to the simple result, so the formula above is the core of the calculation either way. The method is the same in a loan or a mortgage, only there the balance changes once a month, as in a loan amortization schedule.

Worked example: interest for one 31-day statement cycle

Yellow cells are the transactions, the cycle dates and the APR. Column E counts the days each balance lasted. The card and the numbers are fictional.

Worked example: interest for one 31-day statement cycle

	A	B	C	D	E	F
1	Date	Transaction	Amount ($)	Balance ($)	Days	Balance × days
2	01 Aug 2026	Opening balance	2,150.00	2,150.00	5	10,750.00
3	06 Aug 2026	Grocery purchase	120.35	2,270.35	6	13,622.10
4	12 Aug 2026	Payment received	-500.00	1,770.35	7	12,392.45
5	19 Aug 2026	Laptop purchase	640.00	2,410.35	8	19,282.80
6	27 Aug 2026	Fuel	45.80	2,456.15	5	12,280.75
7		Total			31	68,328.10
8
9	Cycle start	01 Aug 2026
10	Cycle end	31 Aug 2026
11	APR	23.99%
12	Daily periodic rate (APR ÷ 365)	0.0657%
13	Days in cycle	31
14	Average daily balance	2,204.13
15	Interest for the cycle	44.91
16	Shortcut: closing balance × APR ÷ 12	49.10
17	Shortcut overstates by	4.19

Illustrative rate and simple daily interest. Issuers differ in details such as daily compounding and how new purchases count, so check your card agreement. Educational, not financial advice.

Why the timing of payments matters

The shortcut closing balance × APR ÷ 12 uses the balance on the last day only. Here it gives $49.10, $4.19 too much, because the $500 payment on 12 August lowered the balance for 20 days of the cycle. The daily method rewards paying early: every day a $500 payment arrives sooner saves about 500 × 0.0657% ≈ 33 cents of interest. It also means a large purchase made early in the cycle costs more than the same purchase made on the last day.

The grace period: when no interest is charged

The calculation above only applies when you carry a balance. Most cards give a grace period on purchases: if you pay the full statement balance by the due date, new purchases are interest-free. In the US, the CARD Act requires the due date to be at least 21 days after the statement is sent. Pay less than the full balance and the grace period is usually lost, so interest is charged from the date of each purchase, and you often have to pay in full for one or two cycles to get it back. Cash advances have no grace period at all.

Payments above the minimum must go to the balance with the highest APR first under US rules. Outside the US, rules differ, so check the terms of your card.

How to lower the interest you pay

Pay the full statement balance whenever you can, which makes the APR irrelevant for purchases. If you cannot, pay as early in the cycle as possible and more than the minimum. Paying only the minimum, often 1% of the balance plus interest and fees, keeps most of the payment going to interest for years. A 0% balance transfer or a personal loan at a lower APR can be cheaper even after a 3% to 5% transfer fee, but only if you pay the balance down before the promotional rate ends.

Common mistakes

• Using a plain average of the balances. Each balance must be weighted by the days it lasted.
• Forgetting the last day of the cycle. The last balance runs to the end of the cycle inclusive: cycle end + 1 − date. The days must add up to the cycle length.
• Dividing the APR by 12 and calling it daily. APR ÷ 12 is a monthly rate. With the daily method, use APR ÷ 365 times the days in the cycle.
• Assuming a grace period after a partial payment. If last month's statement balance was not paid in full, new purchases usually accrue interest from the day they are made.
• Mixing balance types. Cash advances and balance transfers often have their own APR. Calculate their interest separately.
• Treating the minimum payment as a plan. At over 20% APR, minimum payments repay the balance very slowly. Compare a fixed monthly payment.