Citibank uses the “Daily Balance” method for calculation of the interest charge on all outstanding balances. The daily balance method works out the daily balances for the different types of transactions imposed on the credit card, for instance purchases, balance transfers, cash advances and so on. Balance transfers are always treated as normal purchases if other promotional rates do not apply. The daily balance method has the following steps:
1) Calculating the daily balance: for every type of transaction the daily balance is calculated using the following formula: Daily Balance = Previous balance(this is the balance in the beginning of the day) + any new purchases/transaction + any periodic interest charge + any fees, charged on this day – any payments or credits;
2) Calculating the daily periodic rate: The daily periodic rate is basically the annual percentage rate divided by the numbers of days in the year (usually 365).
3) Calculating the interest charge: The interest charge is the interest that the cardholder has to pay over the balance of his/her purchases. When the daily balance is multiplied by the daily periodic rate, the result is the interest charge for the balance that day.
4) Calculating the interest charge for the billing period: The sum of all the daily interest charges is the interest charge due for the whole billing cycle.
5) Calculating the balance subject to interest charge: The average daily balance is the balance subject to interest charge. The average daily balance is found when the sum of all the daily balances for one billing cycle is divided by the number of days in the billing cycle (usually 30).
6) Calculating the total minimum payment: The total minimum payment is due every month and the delay or missing of the payment will result in a late payment penalty fee. The total minimum payment is comprised of firstly, any past due amounts or amounts that the cardholder owes, any amounts which exceed the credit limit of the card member and lastly the largest of :
- The entire new balance if it is a smaller amount than $20;
- If the new balance is at $20 at least then the amount added will be $20;
- The sum of 1% of the new balance, any late fees and any interest charge;
- 1.5% of the new balance of the cardholder.
Whichever the calculation is, the total minimum payment will never be larger than the new purchase balance of the cardholder.
The bank has a policy of applying the total minimum payments for covering balances, which have lower annual percentage rates first. Any amounts in excess of the minimum payment will be applied to cover the balances with the highest annual percentage rates first. This policy is called payment allocation.
A way to avoid paying interest charge on any new purchases is to use the grace period of 23 days. After closing of the billing cycle the cardholder has 23 days to pay his/her entire purchase balance. Then any new purchases will not accrue interest for the period. This is applied to purchases only, balance transfers and cash advances do not have a grace period.
Types of penalty fees
1) Late Payment Fee – This type of penalty fee will apply every time the cardholder does not submit at least the total minimum payment by the due date each billing cycle. If it is a single violation the fee will be as follows:
FEE BALANCE
$15 up to $100
$25 over $100
However, if another late payment is present for the next six billing periods the penalty fee will be $15 for balances up to $100, $29 for balances between $100 and $200 and $35 for balances over $200.
2) Returned Payment Fee – Whenever the cardholder submits a paying instrument, which the bank cannot process and has to return unpaid, a penalty fee of $25 is applied. This penalty fee will be increased up to $35 if another payment instrument has to be returned unpaid within the next six billing cycles.
3) Stop Payment on Cash Convenience Check Fee – If the bank honors a request made by the cardholder to stop a payment on any cash convenience check, a penalty fee of $39 is required.