Borrower Beware
If you carry a balance on your credit card account from month to month, you might be interested in this new way banks have devised to separate you from your money:
I have friend who is a lawyer for a federal agency that deals with banks. He said that Bank of America has changed the way it calculates the "average daily balance" upon which it charges you interest.
The old less expensive way was, in simple terms, to add the daily balances each day in the billing period and divide by the number of days in the period. You paid interest on the result.
BOA now averages two billing periods rather than one. This change means you will pay more interest. An example:
On the first day of your billing period you buy $1,000.00 worth of stuff on credit. When the bill comes you pay $500.00 of the $1,000.00 you owe. Under the old calculation, you would pay interest the next month on the $500.00 balance in the new billing period (500 x 30 = 15,000/30 = 500). But now, BOA goes back sixty days. You pay interest not on the $500.00 you averaged as a balance in the new month, but on the average balance for two months which is $1,250 (1,000 x 30 + 500 x 30 = 75,000/60 = 1,250). If your card has an interest rate of 10%, this works out to $7.50 more in interest over the two month period. BOA is charging you interest on money you have already paid back to it.
According to my friend the fed, as long as the bank "discloses" this (the mice type you don't read) it is legal.
5 comments:
Thanks a lot. I have a BofA card that I pay off every month, but I will probably cancel this card now that I know what they are doing.
You're welcome. I actually have the same situation. I "accepted" a pre-approved offer from my local bank yesterday to replace the BOA card. An aside: I've been told that cancelling a card actually lowers your credit rating. You might want to consider keeping the BOA card as long as there is no annual fee.
Double check me on this, because I'm pretty lousy at math, but when I compute ((30*1000)+(30*500)) I get 45,000, which when divided by 60 gets 750.
750 is still more than 500, so either way the bank still wins.
I actually did the math twice on an envelope that was laying on the desk. Can't check it because I threw it away. Looking at your formula, it appears correct. I got a passing grade in college trig by promising to never take another math course.
No matter who issues your credit card, the deal always gets worse over time. I've never read one of their changes in terms and conditions and felt good about it. Fortunately, I no longer carry a balance, so most of the changes don't affect me, other than to cause another episode of eye rolling.
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