How does credit card interest work?

Interest is calculated daily using a daily periodic rate — your APR divided by 365. If you carry a balance, interest accrues on your average daily balance each day and compounds, so yesterday's interest starts earning interest today.

Most issuers use the average-daily-balance method: they sum your balance for each day in the cycle, divide by the number of days, then multiply by the daily periodic rate and the days in the cycle. A 24% APR works out to roughly 0.0658% per day. Your statement may show separate APRs for purchases, balance transfers, and cash advances, with cash advances usually highest — and when you pay more than the minimum, federal rules require the excess to hit the highest-APR balance first. The escape hatch is the grace period: pay your statement balance in full by the due date and you owe zero interest on purchases. Once you carry a balance forward, that grace period disappears and new purchases typically accrue interest from the transaction date.

Reviewed by the ClearValue Editorial Team · Last updated 7/8/2026