Your line of credit statement shows an interest charge. Can you reproduce it? You can, and checking takes about five minutes. If you run Dynamic Banking, you're counting on daily interest, so it's good to know the bank is calculating it the way you think.
The formula has three parts. Take your average daily balance, which is the average of what you owed on each day of the billing cycle. Multiply it by the annual rate, or APR. Then multiply by the number of days in the cycle and divide by 365. Many lenders use 365. Some use 360, so check your agreement.
Start with a balance that never moves. You owe $18,000 at 8% for a 30-day cycle. That's $18,000 times 0.08 times 30, divided by 365, or $118.36. A lender using 360 days gets $120.00 instead. The gap is $1.64 a month. That means a 360-day lender actually charges you about $20 more a year, so find out which one yours uses.
Now a balance that moves. Your pay lands on day 11, so you owed $20,000 for 10 days and $16,000 for 20 days. Add up the daily balances: 10 times $20,000 is $200,000, and 20 times $16,000 is $320,000. That's $520,000 over 30 days, which makes your average daily balance $17,333. Times 0.08 times 30 over 365 gives $113.97. Notice how the days at the lower balance pulled the charge down from $118.36.
A rate change inside a cycle works the same way. Say you owe $18,000 and the rate moves from 8% to 8.25% on day 16. Fifteen days at each rate costs about $120.21 instead of $118.36, so a quarter point added about $1.85 that month. Add up the pieces, one rate at a time.
Where do you find the daily balances? Your bank's app or online statement usually lists each transaction with its date. Rebuild the balance day by day, and watch the date a payment posts, not the date you sent it. Lenders post some transfers a day or more later. How you move the money changes the posting date.
If your number is within a few dollars of the statement, you're fine. Cents of difference usually come from rounding. A difference of $10 or more deserves a call. Possible causes are a different day count, a fee that's mixed into the interest line, a rate change partway through the cycle, or a payment that posted late.
Rate changes matter most on a variable line of credit. When your rate moves, the new rate applies from that day, so a cycle can have two rates in it. Your HELOC rate is prime plus a margin explains why it moves, and the fee sheet lists other charges that can show up on a statement.
Pick last month's statement tonight, compute the interest charge with the formula above, and write the difference from your bank's number at the top of the page.