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Daily Interest Rate Formula:
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The daily interest rate represents the interest accrued on a daily basis, calculated by dividing the annual interest rate by 365 days. This is commonly used in finance to calculate daily interest charges or earnings on loans, investments, and savings accounts.
The calculator uses the daily interest rate formula:
Where:
Explanation: This formula distributes the annual interest rate evenly across all days of the year to determine the daily interest accrual.
Details: Calculating daily interest rates is essential for understanding how interest compounds on a daily basis, which is particularly important for credit cards, daily compounding investments, and short-term loans where interest accrues daily.
Tips: Enter the annual interest rate as a percentage (e.g., enter "5" for 5%). The calculator will automatically compute the equivalent daily rate.
Q1: Why divide by 365 instead of 360?
A: While some financial institutions use 360 days for simplicity, dividing by 365 provides a more accurate daily rate that accounts for the actual number of days in a year.
Q2: How does daily interest affect compounding?
A: When interest compounds daily, your balance grows slightly faster than with annual compounding because you earn interest on previously accrued interest every day.
Q3: Is the daily rate the same as APR divided by 365?
A: For simple interest calculations, yes. However, for compound interest, the calculation is more complex and depends on the compounding frequency.
Q4: Can I use this for credit card interest calculations?
A: Yes, credit card companies typically use daily periodic rates calculated by dividing the APR by 365 to determine daily interest charges.
Q5: How accurate is this calculation for leap years?
A: For most purposes, using 365 days is sufficiently accurate. For precise calculations in leap years, you might divide by 366 for that specific year.