13 What is the credit card statement telling me?
The next video explores what you will find on a typical credit card statement. Watch carefully so that you can complete the next activity – the last one in this session.
Activity 4 Understanding interest charges on credit card accounts
The credit card statement estimates that if only the minimum amount of £25 is paid off the outstanding balance of £355.74 then the interest to be added will be £7.41.
- What is this estimated figure as a percentage of the outstanding balance (less the £25 minimum payment)?
- The monthly rate of interest for balances held on the card is 1.24%. Why is the percentage much lower than the percentage you calculated in the first question?
- The percentage is [£7.41/(£355.74 - £25)] x 100
This is (£7.41/£330.74) X 100 = 2.24%
- This is higher than the monthly interest rate of 1.24% because it is based on the time period between the purchases made with the card and the payment date on next month’s bill. This will be much longer than a month – in fact it will typically be closer to two months.