Question regarding compound interest

Shabadabadoo

Hello,
Could someone please explain how compound interest on a credit card works please?
I have always understood that the interest on the balance is calculated daily and then is capitalised (paid onto balance) on your statement date. It is at this point that the interest starts compounding as you are then accruing interest on that interest daily until it is paid off via your monthly payment.
I have a credit card company that has written to me saying that they calculate interest daily and that interest is added onto my balance which is then compounded.
I’m totally confused now. I thought interest built up in the background and wasn’t compounded till it hit your balance on the statement date?
Any info would be appreciated. Thank you.

chattychappy

Your understanding is correct.


I'm not sure that the CC's reply contradicts this, though it seems a bit vague. Perhaps you could quote the exact text.

Ben8282

The interest will be added monthly on your statement date and will become part of the balance as of that date.
You will then pay interest on the interest until the interest is repaid. As payments will be allocated to interest before other transactions and as these days minimum payments should be high enough to cover the interest charged the previous month, you will only be paying interest on the interest until the payment for that month's statement is received.