Current account interest by the daily balance method

The daily balance method, step by step

Interest on a current account accrues day by day on the balance. The progressive method works it out like this: sort the movements by value date, after each one compute the new balance and count the days until the next. Balance × days ÷ 100 is the interest product, a credit product if the balance is positive, a debit product if it is negative.

At closing, the products of each kind are added up and the rates applied: interest = products × rate ÷ 365, with 365 as the fixed divisor. On credit interest the bank withholds tax at the local rate; overdraft interest and fees are subtracted.

With the sample movements, an opening balance of 1,000 and four movements in 2025, the credit products total 5,668 and the debit products 355. At 0.5% credit and 9% overdraft, credit interest is 7.76 and overdraft interest 8.75: a few days overdrawn cost more than months in credit.

Common mistakes

Using the transaction date instead of the value date: interest runs from the value date.
Counting both ends of a period: from the 1st to the 10th of the month is 9 days.
Not sorting the movements before computing the balances: a deposit booked after a withdrawal changes the products.

Frequently asked questions

What is the value date?

The date from which a movement starts or stops earning interest. For cash deposits it is usually the day of the transaction; for cheques and transfers it can be later.

Why divide the products by 100?

It is a textbook convention: the product is capital × days ÷ 100, so that interest comes from multiplying by the rate as a whole number and dividing by 365, the fixed divisor.

How does it differ from the direct method?

The result is the same. The direct method computes interest on each movement up to the closing date; the progressive method computes it on the balances between movements, which is what banks use because it handles switching between credit and overdraft cleanly.

How this calculation works

For each balance: days = date of the next movement (or of closing) − date of the movement; product = balance × days ÷ 100, a credit product if the balance is positive, a debit product if negative. Credit interest = Σ credit products × credit rate ÷ 365; overdraft interest = Σ debit products × overdraft rate ÷ 365. Net = credit interest × (1 − tax) − overdraft interest − fees; closing balance = last balance + net.

Bill discounting

Bank discount, true discount and compound discount, net proceeds and effective rate of a discounted bill.

Late payment interest

Interest on an invoice or a debt paid late, from the days overdue and the rate.

Simple interest

Solve for capital, rate, periods or final amount when interest is not capitalised.