TD Bank To Charge "Interest on Interest" On All Credit Card Balances Effective March.

Mounting credit card debt is an expensive problem for many credit card users all over Canada, and despite most Canadians having credit card balances, many are still unsure about how their credit card’s interest gets calculated.

Unfortunately, because different financial institutions calculate interest in various different ways, a borrower can be under informed about the process and end up paying much more interest than desired instead of switching to a cheaper credit card.

TD Bank recently sent out a notice to customers advising that effective March of this year, it will begin charging “interest on unpaid interest” which will then get compounded daily.

As a reference, Royal Bank of Canada and Canadian Imperial Bank of Commerce do not not charge interest on interest; they both only charge compounded interest on the daily outstanding balance. Scotiabank does have some products such as the Momentum MasterCard Credit Card that it charges interest on interest on, however, it does not calculate charges this way for most of its other credit products.

To avoid paying credit card interest, cardholders must make a payment within 21 days of their purchase which is the interest-free grace period. Cash advances do not have a grace period.

If a cardholder cannot pay their entire balance in full, interest begins to accumulate from the day of their transaction to the day the balance is paid off. Interest then gets calculated on the daily balance and is divided by the number of days in the statement period. The credit card’s specified interest rate is then applied to the equation.
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TD Bank has decided to add any unpaid interest charges to the outstanding balance and compound that amount ultimately making the minimum monthly payment more costly.

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