Daily Interest Formula:
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Daily interest is the amount of interest earned or paid on a daily basis, calculated from an annual interest rate. It's commonly used in banking, loans, and investments to determine daily accruals.
The calculator uses the daily interest formula:
Where:
Explanation: The formula converts the annual rate to a daily rate by dividing by 365 days, then applies it to the current balance.
Details: Calculating daily interest helps understand how much interest accrues each day, which is important for comparing financial products, understanding compounding effects, and managing loans or investments.
Tips: Enter the current balance in dollars and the annual interest rate as a percentage (e.g., enter 5 for 5%). The calculator will compute the daily interest amount.
Q1: Why divide by 365 instead of 360?
A: Most modern financial institutions use 365 days for daily interest calculations, though some may use 360 days (known as the "banker's year").
Q2: Does this account for compounding?
A: This calculates simple daily interest. For compound interest, the calculation would be more complex as it would include previously earned interest.
Q3: How accurate is this calculation?
A: It provides a good estimate for most purposes, but actual bank calculations may use slightly different methods or rounding rules.
Q4: Can I use this for loans and credit cards?
A: Yes, this works for any product with an annual interest rate, though credit cards may have additional fees or calculation methods.
Q5: What if interest is compounded daily?
A: For daily compounding, you would need a different formula that accounts for the compounding effect over time.