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Revolving Account Calculator

Reviewed by Calculator Editorial Team

A revolving account is a credit facility that allows you to borrow funds up to a certain limit, typically on a credit card or line of credit. The interest on a revolving account is calculated on the average daily balance, which can vary each month. This calculator helps you estimate how much interest you'll pay on your revolving account balance over time.

How Revolving Account Interest Works

Revolving account interest is calculated based on the average daily balance carried on the account during the billing period. Here's how it works:

Key Concepts

  • Credit Limit: The maximum amount you can borrow on your revolving account.
  • Interest Rate: The annual percentage rate (APR) charged on the balance.
  • Daily Balance: The balance carried at the end of each day during the billing period.
  • Average Daily Balance: The sum of all daily balances divided by the number of days in the billing period.

Calculation Process

  1. Track your daily account balance throughout the billing period.
  2. Calculate the average of all daily balances.
  3. Multiply the average daily balance by the daily interest rate (APR divided by 365).
  4. Sum the daily interest charges to get the total interest for the period.

Note: Some credit cards use a simplified monthly average balance method instead of daily averages. Check your card's terms for the exact calculation method.

Interest Charges

The interest charged on a revolving account typically appears on your monthly statement. It's important to pay this amount to avoid additional fees and maintain good credit.

Formula and Assumptions

The interest on a revolving account is calculated using the following formula:

Interest = (Average Daily Balance × Daily Interest Rate) × Number of Days in Billing Period

Where:

  • Average Daily Balance: Sum of all daily balances divided by number of days
  • Daily Interest Rate: Annual Percentage Rate (APR) divided by 365
  • Number of Days in Billing Period: Typically 30 days for monthly statements

Assumptions

  • The calculator uses a 30-day billing period by default.
  • Interest is calculated daily on the average balance.
  • The APR is assumed to be the same for the entire period.
  • No minimum payment requirements are considered.

Worked Example

Let's calculate the interest for a revolving account with the following details:

Starting Balance: $1,500

Daily Spending: $50 per day

Daily Payments: $100 per day

APR: 18%

Billing Period: 30 days

Step-by-Step Calculation

  1. Calculate the daily balance for each day:
    • Day 1: $1,500 - $100 + $50 = $1,450
    • Day 2: $1,450 - $100 + $50 = $1,400
    • ... (continue for 30 days)
  2. Sum all daily balances and divide by 30 to get the average daily balance.
  3. Calculate the daily interest rate: 18% APR ÷ 365 = 0.00493% per day
  4. Multiply the average daily balance by the daily interest rate and by 30 days.

The total interest for this example would be approximately $22.50.

Frequently Asked Questions

How is revolving account interest calculated?
Revolving account interest is typically calculated on the average daily balance carried during the billing period, using the daily interest rate (APR divided by 365).
What's the difference between APR and daily interest rate?
APR is the annual percentage rate, while the daily interest rate is APR divided by 365. This gives the interest charged each day on the average balance.
How can I reduce revolving account interest?
To reduce interest, pay down your balance as much as possible each month, avoid carrying a balance for long periods, and consider transferring balances to a card with a lower APR.
What happens if I don't pay the minimum payment?
If you don't pay the minimum payment, your balance will continue to accrue interest, and you may be charged late fees. This can quickly increase your debt and interest costs.