1. What is Daily Compound Interest?

Daily compound interest is a method where interest is calculated and added to the principal balance every day. This means that each day's interest calculation includes both the initial principal and any previously earned interest, leading to exponential growth over time.

2. How Does the Calculator Work?

The calculator uses the daily compound interest formula:

Where:

• \( A \) — Final amount including interest
• \( P \) — Principal investment amount ($)
• \( r \) — Annual interest rate (as a decimal)
• \( t \) — Time period in years
• 365 — Number of compounding periods per year (daily)

Explanation: The formula calculates how much your investment will grow when interest is compounded daily, taking into account the exponential effect of earning interest on previously earned interest.

3. Importance of Daily Compounding

Details: Daily compounding can significantly increase your returns compared to less frequent compounding methods. The more frequently interest is compounded, the faster your money grows due to the "interest on interest" effect.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 5 for 5%), and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does daily compounding differ from monthly or annual compounding?
A: Daily compounding calculates interest every day, while monthly does it once per month and annually once per year. Daily compounding yields higher returns due to more frequent interest calculations.

Q2: What's the difference between APR and APY with daily compounding?
A: APR is the annual rate without compounding, while APY includes the effect of compounding. With daily compounding, APY will be higher than APR.

Q3: How accurate is this calculator for real-world investments?
A: This calculator provides theoretical results. Actual investments may have fees, minimum balances, or different compounding methods that affect final returns.

Q4: Can I use this for loans as well as investments?
A: Yes, the same formula applies to loans with daily compounding interest, though you'd be calculating the amount owed rather than earned.

Q5: Why is 365 used instead of 360 days?
A: 365 represents the actual number of days in a year. Some financial institutions use 360 days for simplicity, but 365 provides a more accurate calculation.