How to Calculate Monthly Accrued Interest

How to Calculate Monthly Accrued Interest
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Calculating monthly accrued interest benefits you whether you are loaning money and charging interest or borrowing money and paying interest. If loaning the money, knowing the monthly accrued interest allows you to figure your interest income. If borrowing the money, you know how much you need to pay to keep the interest from being added to your account balance. To figure the monthly accrued interest, you need to know the average daily balance of the account and the annual interest rate.

Divide the annual interest rate by 12 to calculate the monthly interest rate. For example, if the annual interest rate is 4.92 percent, divide 4.92 percent by 12 to get a monthly interest rate of 0.41 percent.

Divide the monthly interest rate expressed as a percent by 100 to calculate the monthly interest rate as a decimal. In this example, divide 0.41 percent by 100 to get 0.0041.

Add the value of the account for each day of the month, and then divide the total of the daily balances by the number of days in the month to figure the average balance of the account. If you did not adjust the balance during the month, the average value equals the starting balance.

Multiply the monthly interest rate as a decimal by the balance of the account to calculate the monthly accrued interest. In this example, if the average daily balance equals $1,710, multiply $1,710 by 0.0041 to get $7.011, which represents $7.01 in interest accrued monthly.