The monthly rate some banks quote is just an average over 12 months. I believe the annual rate should be (1+monthly rate)12-1. Since months have 28, 29, 30 or 31 days, the daily rate is used for the calculation which looks almost the same as the monthly rate. I’m asking this question because I want to know if my bank is charging me, and others the wrong amount.

To calculate interest on a credit card, banks use a daily rate to ensure that interest is charged for as long as it is due. I believe that the interest calculation for one year is (1+daily rate)365 -1. I need to know if this is correct. No one at my bank will let me know either way.

I usually clear my credit card balance by direct debit each month. On 23rd December I bought some wine which I hoped would be added to my January statement for payment in February. Unfortunately, I miss calculated and the wine was charged on my December statement for payment in January. I made three payments in January which were not enough to pay the full amount. I was left with a negative balance of £272.60. I also made a purchase of one item which added £7.50 to the balance. Since I had reinstated my direct debit payment in time for my February payment, the full balance was cleared on 18th February. By my calculation, the £272.60 was in deficit for 57 days and the £7.50 for 30 days. I have been given the daily compound interest rate of 0.0407814%. My calculation is the interest due on the £272.60 for 57 days is (1+0.000407814)57-1 or (2.3513%) multiplied by the debt = £6.41. The same calculation for the £7.50 is (1+0.000407814)30 -1 or (1.2307%) multiplied by the debt = £0.09. I have calculated the days by taking the purchase date from the repayment date of the 18th February 2022. This totals £6.50, but my bank has calculated the interest at £15.64 in January and a further £2.46 in February. I have asked how bank calculates interest but none of the employees at the bank know. Apparently, its too complicated and no employees who deal with customers can provide the answer. My question cannot be escalated to someone who can explain what is wrong with my calculation. Apparently, the computer works it out and that is all that matters (to the bank). I did calculate the daily rate at 0.040435% on the basis that it is 15.9% annually. I used the formula (1+0.00040435)365-1 to confirm an annual rate of 15.9%. The same formula using bank’s calculation produces an annual rate of 16.04%. My calculations may not be perfect but the bank interest calculation is nearly 2.8 times mine. What is wrong with my calculation?