APR vs. APY Calculator Simple Explanation

In very general terms, I always knew the Annual Percentage Rate (APR) and the Annual Percentage Yield (APY) were essentially the same, but there must be some difference. I finally decided to do some research and discovered the below.

Definition Annual Percentage Rate Annual Percentage Yield
Main Difference The annual cost of borrowing money that includes fees The rate at which your deposit account can earn money
Account Types
  • Credit Cards
  • Mortgages
  • Savings Account
  • Certificates of Deposit
Formula APR = ( ( ( ( Fees + Interest Paid over Life of Loan ) / Loan Amount ) / Number of Days in Loan Term ) * 365 ) * 100
APY = ( 1 + (r/n) )^n – 1
r = annual interest rate
n = the number of times interest compounds per year

Balance $
APR (%)  
Days in Month  
Days in Year  
Interest Per Day $
Interest Per Month $
Interest Per Year $
Balance $
APY (%)  
How much you gain depends on how often the amount compounds
Below you’ll see how much you’ll get at the end of a year (assuming 365 days in a year)
Balance Compounded Daily $
Balance Compounded Monthly $
Balance Compounded Annually $

How to Calculate Average Daily Balance

The average daily balance (or daily average balance) is calculated by adding the ending balances of each day for a defined number of days (usually 30 days for credit card calculations) and dividing it by that total number of days.

For example:

  • Ending balance for Day 1: $1000.00
  • Ending balance for Day 15: $2000.00 (because you bought some things worth $1000 on this day)
  • Ending balance for Day 20: $1500.00 (because you paid off $500 on this day)

The above example would really look like this:

Day Balance
1 $1000.00
2 $1000.00
3 $1000.00
4 $1000.00
5 $1000.00
6 $1000.00
7 $1000.00
8 $1000.00
9 $1000.00
10 $1000.00
11 $1000.00
12 $1000.00
13 $1000.00
14 $1000.00
15 $2000.00
16 $2000.00
17 $2000.00
18 $2000.00
19 $2000.00
20 $1500.00
21 $1500.00
22 $1500.00
23 $1500.00
24 $1500.00
25 $1500.00
26 $1500.00
27 $1500.00
28 $1500.00
29 $1500.00
30 $1500.00
Total $40,500.00

Now divide the total ($40,500.00) by the total number of days (30) and you get an average daily balance of $1,350.00 which is what your credit card company will calculate your credit card interest against.

To make your life easier, I have created an average daily balance calculator.

Don’t Blame Credit Cards

It’s noticeable that credit cards have gotten a very bad reputation over time. Credit cards are typically associated with negative connotations, such as high debt, bankruptcy, and simply fear. It’s time to stop misdirecting the blame of these negative attributes to an inanimate object and start looking at ourselves, the consumers. With proper money management education, we can curb a lot of household financial distress.

It is said that the average credit card debt per credit card holder is figured to be about $8,000. Of course, this number is skewed because a majority of consumers could have zero credit card debt, while the remaining have massive debt. It’s figures like these that have driven people away from leveraging their credit cards more often. However, the numbers themselves do not speak the whole truth.

There is a difference between good debt and bad debt. Good debt is typically associated with investments that will help generate additional value in the long run (e.g. education, office equipment, advertising, etc). Bad debt is something we are more commonly aware of, which are purchases that are not necessary for survival nor generates/appreciates in value over time. These are also referred to as luxury items. Though the amount of credit card debt may be massive on one end of the spectrum, who is to say that it is not being used for good debt?

Aside from the “high average debt”, credit card companies are also perceived as vultures for targeting unassuming consumers. And though, it’s true, there are some companies that prey on consumers lack of due diligence (e.g. the Kardashian Kard), most do not. They only provide the applicant with what they calculate he/she can handle, especially since financial institutions are so adverse to extending credit nowadays. Just because financial institutions distribute the cards does not mean we should be condemning them either. It’s up to the consumer to ensure they understand the terms they are getting themselves into and the best option for them.

The real concern of credit card usage lays with the consumers that are not living within their means and are over consuming luxury items. Their finger should point to themselves for getting placed in this predicament. The question is then, how do we solve this? The answer: provide better and earlier education in financial/money management. Without proper education, the amount of bad debt consumers incur will continually grow, no accountability for their own actions will be taken, and the economy will be hurt even more.

The initiative to solve this problem is underway, such as the Ariel Elementary Community Academy mentioned in the article,teaching kids about money. And other resources, provided by CreditCard.com, allow consumers to determine which cards are available for them and and list of their terms and benefits.

As some of you may have noticed, a list of examples for luxury items was not provided, because there’s always a way to rationalize how it can be considered an investment. But let’s be honest with ourselves, we know what we need to survive, what truly generates value, and what we simply want because of the “cool factor”.

8 Reasons Credit Cards Are Better Than Debit Cards

Based on a recent article from the National Retail Federation, consumers will be relying less on credit cards this holiday season. In fact, it’ll be the lowest since 2002. People are making this decision because they want to actively budget they’re spending on gifts. I believe this a strategy that works well, but if you can control your spending WHILE using your credit card, then you’re getting the best of both worlds.

In light of the holiday season, I’ll give you my Top 8 reasons of why using a Credit Card is better than a Debit Card:

  1. Credit cards provide better security. If you have any charge disputes on your debit card because your card got stolen, then the bank will not release your money until it has been cleared. That means you can be out of hundreds or thousands of dollars, when it wasn’t even your fault.
  2. Accumulate Reward Points. More credit cards than debit cards allow you to accumulate points towards reward items (e.g. travel, electronics, even cash)
  3. Build your credit. As always, building a good credit history is extremely important and only a very few debit cards can do this.
  4. Warranty coverage. Surprisingly, most credit cards offer a special warranty on items you purchase with it. Perfect for when your gift is broken within a year. I was surprised to find out how many of my own cards offered this benefit. You should call up your credit card company and see if you’re covered as well.
  5. Stress-Free Authorization Holds. You’ll notice when you check into a hotel, they typically have signs telling you that they will place a temporary charge on your debit card. This charge is used to protect the hotel from delinquent guests, which is fair. However, this charge will remain on hold for days after you’ve checked out. This means you’re have less cash on hand.
  6. Cheaper to rent a car. Perhaps you’re visiting family outside your hometown and need to rent a car. If you try to rent with a debit card, they will require that you use pay the daily insurance coverage.
  7. Price Protection. Another surprise is that some credit cards also offer price protection on the items you purchase. This means if you purchased a product and the price drops within a certain time period (usually 30 days), the credit card company will match the new price.
  8. Various Additional Perks. Roadside assistance, lost luggage coverage, are just to name a couple and when the snow falls or you have a valuable gift in your luggage, these will come in very handy.

You may wonder why I left out “overdraft fees”. This was a major advantage of credit cards over debit cards. However, with the new federal law passed in July 2010, it prevents banks from charging you an overdraft fee and simply decline purchases if you don’t have enough. You can get around this by providing your bank the permission to withdraw from another account, but my personal opinion is to not opt-in and simply let charges get declined.

Another great perk of a credit card versus a debit card, is that if you get a 0% APR or low interest credit card, it’s essentially free money.

Don’t Be Lazy When It Comes to Money: Use A Manual Ledger

If you’re like me, you find it really convenient that your credit card or banking institution provides you with a list of your most recent transactions when you log into your online account. It really simplifies the book keeping process and that’s great. Unfortunately, with simplicity comes laziness and with laziness comes mistakes/unwelcomed surprises. I have to admit, I have fallen victim to this.

This past month, I have been going out more often with friends for birthdays, dinners, movies, etc. This leads to me placing charges to to my credit card. I usually check my balance once a week to make everything is in order, but with multiple things going on and again, laziness, I skipped a few weeks. To my unwelcomed surprise, I spent a lot more than I have in a long while. Luckily, I can handle it, but it blew out my budget for the month.

What could I have done to avoid this? Well, I guess I could have checked my online balance more often, but not all transactions appear immediately. And even if they do, they typically don’t include the additional tip you’ve added to the bill. Going out to eat numerous times can really cause your total debt to be offset by a lot. My solution is to keep a simple ledger going forward. It doesn’t have to be anything fancy whatsoever, just follow these three easy steps:

  1. Create a new spreadsheet
  2. Create four (4) columns: Transaction Date, Vendor, Card, and Amount:
    • Transaction Date – the date you made the purchase or deposited money
    • Vendor – the place you made your purchase or return
    • Card – in case you have multiple cards, you can keep track of which one your spending with
    • Amount – the cost of the transaction
  3. Enter all your transactions each night through the receipts you collect

This is a tactic I used to curb my spending after college as well. It worked wonders because it gave me a real time tally of how much I was spending and how much I truly had left in my accounts. It’s also the idea of associating your purchase with additional labor and helps with memorization. What does it help you remember? THAT YOU KEEP SPENDING MONEY THAT SHOULD BE SAVED!

How Credit Card Interest is Calculated

There is no simple way to calculate interest on credit cards. There are different values that come into play:

  • Outstanding balance from the month before
  • Annual Percentage Rate of your credit card
  • Number of days in a month your credit card is calculated over
  • Number of days in a year your credit card is calculated over
  • Your Monthly Payment amount

For the calculations below, I’m just going to take a snapshot in time, so that it doesn’t take into account your monthly payments and compound interest. Essentially, I’m trying to give you a simpler view so that it’ll be easier to digest how much money you will be burning on interest on a daily, monthly, and annual basis.

The below examples will use the following values:

  • Annual Percentage Rate = 10%
  • Outstanding Balance = $5000
  • Days per Month = 30
  • Days per Year = 365

Formula to calculate daily credit card interest accrued:

  • ((Annual Percentage Rate/100)/Days per Year) * Outstanding Balance = Daily Interest
  • Example: ((10/100)/365) * 5000 = $1.37

Formula to calculate monthly credit card interest accrued:

  • ((Annual Percentage Rate/100)/Days per Year) * Outstanding Balance * Days per Month= Monthly Interest
  • Example: ((10/100)/365) * 5000 * 30 = $41.10

Formula to calculate annual credit card interest accrued:

  • Outstanding Balance * (Annual Percentage Rate/100) = Annual Interest
  • Example: 5000 * (10/100) = $500.00

What Are The Benefits to Calculating Your Daily Interest Rate?

After I created the “Calculate Your Daily, Monthly, and Annual Credit Card Interest” page, I was asked numerous times, why did you specifically decide to create that tool and what purpose does it serve? Well, I guess my brief intro on the homepage was a bit too brief. Let me elaborate.

Around the time I created that automated form, I was actually trying to make the decision of whether or not it’d be worth my effort to transfer my credit card debt into another credit card. I had multiple 0% balance transfer offers on existing cards, but knew better than to think it was a no-brainer decision, since there’s always a transfer fee associated with them.

The first step I took was to calculate how much interest I was losing per month. The idea was that the one time balance transfer fee may equate to be about three months worth of interest, in which case I could potentially pay off within two months. If that were the situation, then I would be wasting time calling up their customer service to perform the transfer. Not to mention, it’s just a dumb decision to pay more in the long run.

Once I got the formula to calculate the monthly interest rate and determined it was a good idea to perform the transfer, it dawned on me that it’d be extremely interesting to figure out how much I was “spending” by carrying this balance for so long. Of course my balance fluctuated throughout the months and years, but I just had to simplify my decision making process by fixing the balance to the amount at the time. What I discovered was pretty eye opening the moment I saw it.

I believe my daily interest came out to be about $1.25, that like one item from the McDonald’s Dollar Menu (plus tax). But, I haven’t been eating at McDonald’s and a side salad sounded pretty good at the time. Then, I thought, what if I escalated the calculation to a week? It came out to be $8.75. That equated to about 3 gallons of gas for my car. And what the heck? I’m always filling up my tank. That extra money would come in really handy!

Essentially, it put the money I was spending on credit card interest into perspective. Seemingly small amounts really add up and I couldn’t believe it. At that point, I made it a goal of mine to erase my credit card debt as soon as possible. So, my purpose of the form is mainly to provide people, in a similar situation that I was in, some perspective. It’s extremely important to manage your money (especially for kids) and figure do what you can to lower/extinguish your credit card debt.

I truly hope some people out there who have used my form realized the same lesson I did. For those who are severe bad credit situations, I recommend determining and monitoring your credit score first to determine how deep you’re in it and then just work your way up.

How To Build Credit With The Public Savings Bank Secured Visa

I was provided the following article for the Public Savings Bank Secured Visa. In a nutshell, this card allows you to create good credit history while removing the risk of missing a payment, which in turn will improve your credit history. Here are the simple steps they provide on their site:

  1. You deposit a minimum of $300 into a Public Savings Bank FDIC insured deposit account.
  2. You can then make purchases with your card up to the amount you have in your security deposit account.
  3. You must pay at least the minimum payment before the due date each month. Your security deposit does not cover minimum payments.
  4. Your payments are reported to all 3 major credit bureaus (TransUnion, Experian, Equifax) so you can begin to establish your credit immediately.

For people with no credit or those who have experienced a negative credit event, such as divorce or foreclosure, establishing credit history can be difficult. Without proper credit, everything from a car loan to an apartment or even a job can be denied.

Prepaid cards are one way to manage daily expenses. However, prepaid cards simply provide access to your own money, not credit from a lender. Prepaid cards do not report to credit bureaus and do not help re-establish credit history. Individuals need to demonstrate on-time monthly payments on a credit card in order to rebuild credit history that’s so important.

How can someone who is denied a credit card rebuild their credit?

Well, one option is the Public Savings Bank Secured Visa. It offers people with low credit or no credit the ability to re-establish their credit history and work towards improving their credit score. Individuals deposit money into an FDIC-insured account that acts as a security deposit. They can then make purchases anywhere Visa is accepted or take cash advances up to the deposited credit line amount, currently between $300-$2000. Payments are reported to all three major credit bureaus (TransUnion, Experian and Equifax) so customers can begin to establish credit immediately.

The Public Savings Bank Secured Visa does not require a credit check or even a checking account to apply. Customers can fund their account via Western Union, ACH, wire transfer, check or money order. The card has no annual or monthly fees, and offers 0% APR for 6 months. Rush shipping is available so customers can begin using their card just days after funding their account.

Building good credit is critical at a time when credit is getting harder to obtain. This card allows the customer to build good credit while enjoying all the benefits of a Visa card at very favorable terms.

You can apply for the Public Savings Vank Secured Visa at www.publicbankcard.com and be approved within only a few hours.

Prepaid Credit Cards and Kids (Teaching Kids About Money)

This article is part of a series on Teaching Kids About Money.

Credit cards have a bad reputation. People view credit cards as an evil doorway to the downward spiral of debt. The truth is, we should all have credit cards. Sure they’re capable of ruining our credit, but ultimately their purpose is to help our credit. The evils of credit cards really falls upon the cardholder and miseducation. One way we can introduce children to using credit cards responsibly is by providing them with Prepaid Credit Cards, where the amount you place in the card is up to you.

Prepaid credit cards don’t necessarily help your credit, though there are ways (e.g. AccountNow Prepaid Visa or MasterCard, The Public Savings Bank Secured Visa, etc.), it’s mainly a great tool to help teach kids how to use credit cards responsibly.

Here are some suggestions on how to teach kids about money management with Prepard Credit Cards (with the help from Little Eddie):

  • When you give the prepaid credit card to Little Eddie, make sure you present him with a specified amount of time the amount of the card should last. For example, you can place $50 on the card and tell Little Eddie you won’t re-fill it for three months.
  • Along with the tip above, you can even add an incentive for Little Eddie to not spend a percentage of his money within the alotted timeframe. So, if you chose to make the percentage 50%, and Little Eddie only spent $25 of his prepaid credit card after three months, then your next refill won’t be $50, but $51 instead. And if Little Eddie is able to stay within his 50% limit, then you’ll re-fill his card with $52 instead. This will teach Little Eddie the benefits of compound interest.
  • On the contrary to the above tip, if Little Eddie uses up all his funds within a month (with no good reason), then you can reduce the amount you’re going to provide him during the next re-fill period. This will teach him to be more money conscious.
  • You should also make it Little Eddie’s responsibility to approach you to get the re-fill. Providing him with a grace period of one week or ten days to do so. If he doesn’t approach you within the grace period, you can again deduct $1 from their re-fill amount. This will teach Little Eddie to be more responsible with time and simulates the idea of credit card late fees.

Do you have any additional ideas on leveraging Prepaid Credit Cards to help teach kids about money management?

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What is the Credit Card Act of 2009?


You may have heard that the new Credit Card Act of 2009 has been passed by the government to help regulate credit cards more closely. But what is it exactly and what does it mean to you? Hopefully, this brief article will help shed some light on this topic and answer your questions.

The CARD Act was passed on Monday, February 22nd. Simply put, this act is supposed to protect the consumer. Some of the ways it protects the card holder is by requiring banks to provide important information in a timely manner:

  • 45 days notice must be provided to the card holder for significant changes to the terms of their cards
  • The bill must be provided to the card holder at least 21 days before payment is due.
  • The bill will provide additional information, such as how long it will take to pay off your balance if you continue to only pay the minimum balance due
  • The bill will also provide information on how much you need to pay per month in order to pay off the bill in three (3) years

Interest rates are protected for the first year

  • Your credit card company now cannot increase your interest rate for the first year after you open an account
  • After the first 12 months, rate increases can apply only to new charges.
  • You won’t get an increase for late payments that are within 60 days of the due date or for late payments to other creditors.
  • Balances with multiple interest rates, any payment above the minimum payment required must generally be applied to the balance with the highest interest rate.
  • Read More about interest rate terms here

Students are less preyed upon:

  • People under the age of 21 will either need a co-signer or evidence that they have enough income to make monthly payments.
  • Card companies can no longer market cards on college campuses.
  • Read more here about how Students are affected
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