1. What is Daily Annual Interest?

Daily annual interest represents the amount of interest earned or paid each day based on an annual interest rate. It's calculated by dividing the annual rate by 365 days and applying it to the principal amount.

2. How Does the Calculator Work?

The calculator uses the daily interest formula:

Where:

• \( Principal \) — Initial investment or loan amount (currency)
• \( Rate \) — Annual interest rate (decimal)
• 365 — Number of days in a year

Explanation: This calculation shows how much interest accrues daily on an investment or loan, which is particularly useful for compounding interest calculations.

3. Importance of Daily Interest Calculation

Details: Understanding daily interest helps investors and borrowers comprehend how interest compounds over time, allowing for better financial planning and comparison of different financial products.

4. Using the Calculator

Tips: Enter the principal amount in your local currency and the annual interest rate as a decimal (e.g., 0.05 for 5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365 instead of 360?
A: 365 represents the actual number of days in a year, making the calculation more precise for annual interest calculations.

Q2: How does this relate to compound interest?
A: Daily interest is the building block for daily compound interest, where each day's interest is added to the principal for the next day's calculation.

Q3: Can I use this for both investments and loans?
A: Yes, the formula works the same for calculating interest earned on investments and interest paid on loans.

Q4: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. This calculator shows the daily component of APR.

Q5: How accurate is this for leap years?
A: For maximum precision in leap years, you would divide by 366 instead of 365, though the difference is minimal for most purposes.