Understanding Interest On Your Citibank Credit Card

Credit card interest is one of those things you know you ought to understand, but you’ve actually never looked into exactly how it works. It’s like accepting that a light bulb goes bright when you hit the switch. It’s enough that it does; do you really need to know how it works?

Perhaps the only thing you really need to know is that low interest is good and high interest is bad. Where credit cards are concerned, when we’re talking about the ongoing APR, anything around 10% is low, and around the 19% mark is high.

Hold on, what’s APR? I thought we were talking about interest.

APR is the Annual Percentage Rate, and this is how credit card companies apply their interest to your account. Although there are is a confusing variety of ways by which some credit card companies arrive at their APR – just to keep you on your toes – the calculation required to work out the APR on a Citibank credit card is fairly straightforward.

Remember that percent means per cent, as in per hundred; as in a century has a hundred years. So a 15% (percent) APR (Annual Percentage Rate) on your card means you would owe $15 on every $100 of debt if you kept that debt for a whole year (that’s the “annual” part). But because credit card interest has to be worked out on a daily basis to account for the monthly payments you make, a small calculation is required.

To calculate a 15% APR on a daily basis, you just divide 15 by 365 (days in the year). 15/365 = 0.0410958. That’s 0.0410958% interest each day on $100. If you owed interest on 30 days, you would simply times that by 30.

Examples of how to work out credit card interest:

Remember the percentage rate applies to every $100 owed. So, to keep it simple, taking the above example, if you owed interest on $100 over 30 days at 15%, the calculation would be 0.0410958 x 30 = $1.232874, which would be rounded down to $1.23 interest.

However …

If the amount you owed was $200, you would have to times that amount by 2: £1.23 x 2 = $2.46.
If the amount you owed was $70, you would have to times that amount by 0.7: $1.23 x 0.7 = $0.86
If the amount you owed was $47, you would have to times that amount by 0.47: $1.23 x 0.47 = $0.58
If the amount you owed was $350, you would have to times that amount by 3.5: $1.23 x 3.5 = $4.30
If the amount you owed was $4,258, you would have to times that amount by 42.58: $1.23 x 42.58 = $52.37
Etc.

At first glance, this may appear complicated, but a few readings will ensure it clicks, and then you will always remember how to predict the credit card interest on any unpaid balance. In this way, you should be better able to budget ahead.

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