Calculate Savings Interest Compounded Daily

Daily Compound Interest Formula:

\[ A = P \times (1 + \frac{r}{365})^{365 \times t} \] \[ \text{Interest} = A - P \]

Interest Earned:

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1. What Is Daily Compound Interest?

Daily compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods, compounded on a daily basis. This results in faster growth compared to simple interest or less frequent compounding.

2. How The Calculator Works

The calculator uses the daily compound interest formula:

\[ A = P \times (1 + \frac{r}{365})^{365 \times t} \] \[ \text{Interest} = A - P \]

Where:

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

Explanation: The formula calculates how much your investment grows when interest is compounded daily, giving you the total interest earned over the specified period.

3. Importance Of Compound Interest

Details: Compound interest is a powerful wealth-building tool. Daily compounding maximizes growth potential as interest is calculated and added to the principal every day, creating exponential growth over time.

4. Using The Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a decimal (e.g., 0.05 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 and adds interest every day, resulting in slightly higher returns compared to monthly or annual compounding due to more frequent compounding periods.

Q2: What's the difference between interest rate and APY?
A: The interest rate is the nominal rate, while APY (Annual Percentage Yield) reflects the actual rate of return including compounding effects. Daily compounding typically results in a higher APY than the nominal rate.

Q3: How do I convert percentage to decimal for the interest rate?
A: Divide the percentage by 100. For example, 5% becomes 0.05, 3.25% becomes 0.0325.

Q4: Can this calculator handle partial years?
A: Yes, you can enter decimal values for time (e.g., 2.5 years for 2 years and 6 months).

Q5: Why is daily compounding beneficial for savings?
A: Daily compounding maximizes the power of compound interest by ensuring your money grows at the fastest possible rate, with interest being calculated and added to your principal every single day.