Daily Compound Interest Calculator

Daily Compound Interest Formula:

\[ FV = P \times \left(1 + \frac{r}{365}\right)^{365 \times t} \]

Future Value (FV):

Total Interest Earned:

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1. What is Daily Compound Interest?

Daily compound interest means that interest is calculated on your principal plus accumulated interest every single day. This results in faster growth of your investment compared to less frequent compounding periods like monthly or annually.

2. How Does Daily Compounding Work?

The formula for daily compound interest is:

\[ FV = P \times \left(1 + \frac{r}{365}\right)^{365 \times t} \]

Where:

\( FV \) — Future value of the investment
\( P \) — Principal investment amount
\( r \) — Annual interest rate (in decimal)
\( t \) — Time the money is invested for (in years)
365 — Number of compounding periods per year

Explanation: The interest is divided by 365 to get the daily rate, and the exponent represents the total number of compounding periods over the investment duration.

3. Importance of Compounding Frequency

Details: The more frequently interest is compounded, the greater the return. Daily compounding yields slightly better returns than monthly or annual compounding, especially over longer periods.

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 compare to monthly compounding?
A: Daily compounding results in slightly higher returns than monthly compounding because interest is being calculated and added to the principal more frequently.

Q2: Is this calculator suitable for loans?
A: While the formula works for loans, most consumer loans use simple interest or monthly compounding. Check your loan terms.

Q3: What's the difference between APR and APY with daily compounding?
A: APR is the annual rate, while APY (Annual Percentage Yield) accounts for compounding effects. APY will be slightly higher than APR with daily compounding.

Q4: How accurate is this calculator for leap years?
A: The calculator uses 365 days for simplicity. The difference in results for leap years is negligible for most purposes.

Q5: Can I use this for investment planning?
A: Yes, this calculator helps estimate growth of savings accounts, CDs, or other daily-compounded investments, but remember actual returns may vary.