Canadian credit cards use daily compounding on the average daily balance:
Step
Formula
1. Daily rate
APR ÷ 365
2. Daily interest
Average daily balance × daily rate
3. Monthly interest
Sum of all daily interest charges
Example: $3,000 Balance at 19.99%
Calculation
Amount
Daily rate
19.99% ÷ 365 = 0.05477%
Daily interest
$3,000 × 0.0005477 = $1.64/day
Monthly interest
~$1.64 × 30 = $49.28
Annual interest
$599.70
The Compounding Effect
Interest is charged on interest. A $3,000 balance left unpaid:
Time
Balance (Min Payments Only)
Total Interest Paid
1 year
$2,530
$510
3 years
$1,480
$1,280
5 years
$750
$1,710
Full payoff
$0 (after ~15 years)
$3,200+
Paying minimum only on $3,000 costs over $3,200 in interest — more than the original balance.
The Grace Period
What It Is
The grace period is the time between your statement date and payment due date — typically 21-25 days.
Scenario
Grace Period Active?
Interest Charged?
Paid last month in full
✅ Yes
No interest
Carried a balance last month
❌ No
Interest from purchase date
Cash advance
❌ Never
Interest from transaction date
How to Keep Your Grace Period
Statement closes → 21-25 day grace period → Due date
↓
Pay FULL balance here = $0 interest next month
Pay LESS than full = lose grace period on NEW purchases
Critical point: If you carry even $1 of balance past the due date, you lose the grace period and new purchases accrue interest immediately.
Minimum Payments
How Minimums Are Calculated
Issuer
Minimum Payment Formula
Most banks
Greater of: $10 or 2-3% of balance
Some issuers
Greater of: $10 or 1% of balance + interest
The Minimum Payment Trap
$5,000 balance at 19.99%, paying only minimums:
Month
Payment
Interest
Applied to Balance
Remaining
1
$100
$83
$17
$4,983
12
$93
$78
$15
$4,660
60
$68
$52
$16
$3,110
180
$21
$3
$18
$170
Time to pay off: ~22 years
Total interest: ~$7,700
Cash Advances
Why They’re Expensive
Feature
Regular Purchases
Cash Advances
Grace period
21-25 days
None
Interest rate
19.99%
22.99-27.99%
Interest starts
After due date (if unpaid)
Immediately
Additional fee
None
3-5% of amount
What Counts as Cash Advance
Transaction
Cash Advance?
ATM withdrawal with credit card
✅ Yes
Wire transfers
✅ Yes
Casino purchases
✅ Yes
Crypto purchases
✅ Yes
Gift card purchases (sometimes)
⚠️ Varies
Online bill payments from credit card
⚠️ Varies
How to Avoid Paying Interest
Strategy 1: Pay in Full Every Month
Month
Statement Balance
You Pay
Interest
January
$2,000
$2,000
$0
February
$1,800
$1,800
$0
March
$2,200
$2,200
$0
Result: You use the bank’s money for 21-45 days free.
Strategy 2: Pay Before Statement Closes
Paying before your statement closes reduces your reported balance, which also helps your credit utilization ratio.
Strategy 3: If You Must Carry a Balance
Use a low-interest card (8.99-12.99%) for the carried balance
Use a rewards card (paid in full) for daily purchases
Consider a balance transfer at 0% to pay down faster