Compound interest

TD to start charging compound interest on all personal credit cards – National

TD will begin charging compound interest on all of its branded personal credit cards, Global News has learned.

In a letter sent to a TD Visa credit cardholder, the bank explains that it will add unpaid interest charges to cardholder balances at the end of each statement period beginning in March.

While many Canadians assume that all credit cards charge compound interest, this is not always the case.

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If interest applies, TD currently calculates it based on a cardholder’s average daily balance until that amount has been paid in full. With the change, the bank will begin adding any unpaid interest charges to the cardholder’s balance at the end of each statement period.

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“As a result, we charge interest on unpaid interest,” the notice says.

Federally regulated financial institutions such as banks must notify their customers of an upcoming interest rate hike, according to Canada’s financial consumer watchdog, the Financial Consumer Agency of Canada (FCAC ).


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In comments to Global News, TD linked the change to the need to stay “competitive.”

“From time to time, we review our products and services, making sure we remain competitive in the marketplace while providing value to our customers,” the bank said in an emailed statement. “When price changes are made, we don’t take the decision lightly and seek to offer our customers options to avoid or reduce the impact of the changes. “

The bank said customers with financial problems are encouraged to contact them directly “about ways we can help them.”

RBC and CIBC told Global News that they currently charge no interest on credit card interest.

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Scotiabank said it does not charge interest on unpaid interest on its Visa or American Express credit cards, which make up the majority of its customer base. The bank added that it is currently charging interest on the interest on the Scotia Momentum Mastercard credit card.

“This is an interest calculation that was inherited by Scotiabank as part of the acquisition of this credit card wallet in 2015,” the bank said in an emailed statement.

BMO did not respond to a request for comment at the time of publication.

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Federally regulated banks must provide credit card statements that include itemized transactions, as well as the amount cardholders must pay by the due date in order to avoid interest charges, according to the Association. Canadian Bankers (ABC).

When cardholders make a new purchase, they have an interest-free grace period that begins on the last day of the statement period and lasts at least 21 days.

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Interest rates vary depending not only on the card, but also on the type of transaction. For example, in addition to purchases, consumers can also use their card to withdraw money, called a cash advance. There is no grace period for cash advances, according to FCAC.

TD confirmed to Global News that its next change in interest calculation will apply to all interest charges for affected credit cards.


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Consumers who do not pay their balance in full on time usually have to pay interest for each day from the time the transaction took place until the day the amount they owe is paid.

Interest charged by banks is based on a borrower’s average daily balance: the bank adds the amount the cardholder owes each day and divides it by the number of days in the statement period.

The bank then calculates the applicable daily interest rate. For example, a credit card with a 20% annual interest rate on purchases would have a daily interest rate of about 0.055% on purchases (that’s 20% divided by 365 days in a year).

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If this credit card had an average daily balance of $ 1,000 over a 30-day statement period, the applicable interest charge would be $ 16.50, or 1.65% of $ 1,000. (The cumulative interest rate, 1.65 percent, is calculated as 0.055 percent multiplied by 30 days.)


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Still, some banks charge compound interest, adding overdue interest charges to the principal balance, and then interest on that.

In TD’s case, the notice seen by Global News says the bank will add unpaid interest charges to customer balances at the end of each statement period.

Frederick Crease, a TD Visa card customer in North Bay, Ont., Who received the letter, said he was concerned about what it would mean for borrowers struggling with debt.

The change, he said, “will put an additional burden on those who can least afford it. Those on a fixed income … single parents and families below the poverty line. “

Canadians have an average credit card balance of about $ 4,200, according to TransUnion.

In 2018, there were nearly 76 million credit cards in circulation in Canada, 38 million of which had a balance, including those that are paid off monthly, according to statistics from the ABC.

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