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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. This method is commonly used in savings accounts, loans, and investments where interest compounds daily.
The calculator uses the daily interest formula:
Where:
Explanation: The formula converts the annual interest rate to a daily rate by dividing by 365 days, then multiplies by the principal to get the daily interest amount.
Details: Understanding daily interest helps in comparing financial products, calculating compound interest growth, and making informed decisions about savings and loans. Daily compounding can significantly impact total returns over time.
Tips: Enter the principal amount in dollars and the annual interest rate as a percentage. Both values must be positive numbers. The calculator will compute the daily interest earned or paid.
Q1: What's the difference between daily and annual interest?
A: Daily interest calculates interest for one day, while annual interest calculates for a full year. Daily interest is useful for understanding short-term growth or costs.
Q2: How does daily compounding work?
A: With daily compounding, each day's interest is added to the principal, and the next day's interest is calculated on the new total, leading to exponential growth.
Q3: Why divide by 365 instead of 360?
A: 365 represents the actual number of days in a year. Some financial institutions use 360 days for simplicity, but 365 is more accurate.
Q4: Can daily interest be negative?
A: No, daily interest is typically positive for investments and savings, representing earnings. For loans, it represents costs but is still calculated as a positive value.
Q5: How accurate is this calculation for leap years?
A: This calculation uses 365 days for simplicity. For precise calculations in leap years, you would divide by 366, but the difference is minimal for most purposes.