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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 principal amount. It's commonly used in savings accounts, loans, and investments where interest compounds daily.
The calculator uses the daily interest formula:
Where:
Explanation: This formula calculates the daily portion of annual interest by dividing the annual rate by 365 days and multiplying by the principal amount.
Details: Understanding daily interest helps in comparing financial products, calculating compound interest, and making informed decisions about savings and loans. It's particularly important for accounts with daily compounding.
Tips: Enter the principal amount in dollars and the annual interest rate as a percentage. For example, enter 5 for a 5% interest rate. Both values must be positive numbers.
Q1: Why divide by 365 instead of 360?
A: 365 days represents the actual number of days in a year. Some financial institutions use 360 days for simplicity, but 365 provides a more accurate daily calculation.
Q2: How does this relate to compound interest?
A: Daily interest is the building block for daily compounding. Each day's interest is added to the principal, which then earns interest the following day.
Q3: Is this calculation used for loans and savings?
A: Yes, this formula applies to both interest earned on savings and interest paid on loans when calculated on a daily basis.
Q4: What about leap years?
A: For maximum precision, some calculations use 365.25 days to account for leap years, but 365 is the standard for most daily interest calculations.
Q5: Can I use this for credit card interest?
A: Credit cards typically use a daily periodic rate calculated by dividing the APR by 365 days, making this formula applicable.