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Bottom Line Up Front

  • Understanding how interest rates are calculated can make it easier to interpret the info in your monthly credit card statement.
  • Typically, interest starts accruing on balance transfers and cash advances as soon as they’re posted, but there is often a grace period for purchase transactions.
  • Making more than the minimum payment on your credit cards could save you a lot of money in the long run.

Time to Read

7 minutes

April 24, 2024

Do you speak your monthly credit card statement’s language? It’s a record of your recent transactions, as well as the fees and interest rates that apply to your account. Understanding these different rates and how they’re calculated can help you make plans to pay off your card. These 5 questions can help you get the full picture.

What’s a variable interest rate and how is it calculated?

A variable rate is a rate that changes based on an index, such as the U.S. Prime Rate.

When you open a credit card account, your account will be assigned a margin rate. That rate is then added to the index.

That new number is your card's Annual Percentage Rate (APR).

When does interest begin to accrue on credit card charges?

Charges generally begin accruing interest at different times, based on the type of transaction and your card issuer’s policies.

Purchases: For many cards, there’s a grace period for purchase transactions beginning on the day after the closing date of your monthly credit card statement. The final date of the grace period is your payment due date. While interest charges do accrue during the grace period, you won’t need to pay them if your account balance is paid in full by the payment due date.

Balance transfers: Typically, interest charges accrue from the posting date until the balance is paid off in full.

Cash advances and convenience checks: Typically, interest charges charges accrue from the posting date until the advance or check is paid in full.

Are multiple interest rates applied to your account balance?

Interest rates may differ slightly based on the type of transaction and your card issuer’s policies.

  • Generally, purchases are charged interest at your card’s standard APR.
  • Cash advances made at a branch or an ATM, online or by phone may be subject to a slightly higher rate than your standard APR.
  • In many cases, convenience checks accrue interest at your account’s standard APR.
  • Balance transfers made without a promotional rate will often accrue interest at your account’s standard APR.

Note: Promotional rates on Navy Federal credit card statements are listed as separate line items in the Interest Charge Calculation section.

How are monthly interest charges calculated?

To understand how monthly interest charges are calculated on accounts that don’t compound interest, you’ll need to know the monthly periodic rate and the Average Daily Balance (ADB).

To find the monthly periodic rate, divide your APR by 12 months.

To find the ADB, take the beginning balance of your account each day, add any new purchases (or cash advances), then subtract any payments, credits and unpaid interest charges. This gives you the daily balance. Then add all the daily balances for the billing cycle and divide the total by the number of days in the billing cycle. That’s the ADB.

If you have a Navy Federal Credit Card, the ADB is listed in the Balance Subject to Interest column of your monthly statement.

Here’s an example:

  • APR of 9.9%
  • ADB of $2,000

To find your monthly periodic rate, you'd divide 0.099 by 12 to get 0.00825. Then, to find your monthly interest charge, you'd multiply $2,000 by 0.00825 to get $16.50.

Example for cash advance interest charges:

  • APR of 11.9%
  • ADB of $3,000.00

To find your monthly periodic rate, divide 0.119 by 12 to get 0.00992. Then, to find your monthly interest charge, you’d multiple $3,000 by 0.00992 to get $29.76.

How are payments applied to your account?

How payments are applied can vary depending on your card issuer. For Navy Federal credit cards, your minimum payment is applied to your interest charges, followed by all fees, then to the balance with the lowest APR. Any amount paid beyond the minimum payment is applied first to the balance with the highest APR and any remaining portion to the other balances in order from the next highest APR to the lowest.

Within the same APR, here’s how your payments will be allocated:

  • Interest charges
  • Fees
  • Previous cycle purchases, cash advances and promotional rates
  • Current cycle purchases, cash advances and promotional rates

The Real Cost of Minimum-Only Payments

If you make the minimum monthly payment on a $5,000 credit card balance with an APR of 17.9%, it will take you more than 34 years to pay it off, and the total cost will be $17,588! Make larger payments when possible to shorten the amount of time you’re in debt.

Amount Paid Each MonthBalanceTime Needed to RepayTotal Interest Paid at 9.9%Total Amount of Payments
2% (minimum payment)*$5,000201 months (16 years)$3,104$8,104
$125 (fixed amount)$5,00049 months (4 years)$1,093$6,093
*The minimum payment percentage shown is an example only. The actual percentage may vary by financial institution.

Keeping Your Credit Cards on Track

By understanding the basics of credit card rates, you can make the most of your card while paying less in interest. To see how a small change can impact your own credit card balances, try Navy Federal’s minimum payment calculator.


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.