How to calculate your daily interest rate

If you grab your calculator and do a little math, you can determine how much you’re paying every day to borrow money with a credit card. Part of figuring that out involves a number called the daily periodic rate, sometimes called the daily interest rate.

Why would you need to calculate it? Because knowing the daily rate for your credit cards can give you a clearer view of how much credit card interest you’re paying. Follow along to learn more about your credit card’s daily interest rate and how to calculate it.

Some credit card issuers rely on something known as the daily periodic rate to determine how much interest to charge. They do this by multiplying that rate by the amount you owe on a card at the end of each day. 

As the Consumer Financial Protection Bureau (CFPB) explains, that amount is tacked on to the previous day’s balance. If your issuer uses this method, it means the interest on your card is compounded on a daily basis.

Interest calculations can vary based on the issuer and the card. So can rates and other terms. So be sure to check your card agreement to know what to expect. 

But generally, if you pay off your balance in full and on time every month, you might be able to avoid paying interest on new purchases. Even paying more than the minimum payment can help you reduce the amount of interest you’ll be charged.

Daily periodic interest vs. annual percentage rate

The rate often associated with a credit card is the annual percentage rate, or APR. That’s a number you’ll need to calculate your daily periodic rate. 

Rates might be variable or non-variable, depending on the card. And it’s also important to know that the interest rates on a credit card can vary based on the type of transaction. For instance, the APR for a regular purchase may be lower than the APR for other transactions, such as balance transfers and cash advances. There could also be penalty APRs for things like late or missed payments.

You can read more about how APRs are determined and what might be a good APR. And remember, fees and other charges could also affect how much you owe each month.

Typically, dividing a credit card’s APR by 365 will give you the daily periodic rate. Thankfully, it’s pretty simple. Here’s how it works:

Step 1: Find the APR

In order to calculate the daily periodic rate, you’ll need the APR for your credit card. You can find this on your credit card statement. If you’re a Capital One customer, you can locate your APR in the section titled: “Interest Charge Calculation.”

Step 2: Do some division

The CFPB says you just need to divide your APR by 365—for each day of the year. That’s what Capital One generally does. But sometimes issuers calculate the daily periodic rate by dividing by 360. 

Daily periodic rate example calculation

Let’s say one of the credit cards in your wallet carries an APR of 19.99%. You can figure out the daily periodic rate by dividing the APR by 365—or by 360, depending on which number your issuer uses. If you divide 19.99% by 365, you get 0.0548%. 

To come up with the amount of interest you’ll pay each month, you’ll need to do some more work. For example, you’ll want to look at how often the interest is compounded on your balance and figure out the average daily balance.

As you can see, this requires more than some simple division. But luckily you can learn more in Capital One’s article about calculating monthly interest. 

Finding the daily periodic interest rate for your credit card can make you a more informed consumer. For one thing, you gain a clearer picture of how much you’re paying to borrow money. In other words, it gives you a better idea of how much that new TV could end up costing you if you pay interest on it.

Getting clear about your interest rates can also help you understand what you’re paying to borrow. Knowing that could help you limit interest charges and help you figure out a strategy to pay down debt.

There’s plenty more to know about interest rates. Remember, you can take the next step by figuring out how to calculate APR for monthly payments.