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Daily Interest Formula:
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Daily interest calculation determines the amount of interest earned or paid each day on a savings account or investment. It's calculated based on the principal balance and the annual interest rate, divided by 365 days.
The calculator uses the daily interest formula:
Where:
Explanation: The formula calculates the daily interest by taking the annual rate, converting it to a daily rate, and multiplying by the principal balance.
Details: Understanding daily interest helps savers and investors track their earnings more precisely, especially for accounts that compound interest daily. It provides insight into how interest accumulates over time.
Tips: Enter the account balance in dollars and the annual interest rate as a decimal (e.g., 0.05 for 5%). Both values must be positive numbers.
Q1: How is daily interest different from annual interest?
A: Daily interest calculates the interest earned per day, while annual interest shows the total interest over a year. Daily interest helps understand the compounding effect.
Q2: Should I use 365 or 360 days for calculation?
A: Most financial institutions use 365 days for daily interest calculations, though some may use 360 days. This calculator uses 365 days for accuracy.
Q3: How does compounding affect daily interest?
A: With daily compounding, each day's interest is added to the principal, so the next day's interest is calculated on a slightly larger balance.
Q4: Can I use this for loan interest calculations?
A: Yes, the same formula applies to daily interest charges on loans, though the context is interest paid rather than earned.
Q5: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't include compounding, while APY (Annual Percentage Yield) does. This calculator shows the daily rate component.