1. What is Daily Interest Rate?

The daily interest rate represents the effective interest rate compounded daily from an annual rate. It's used to calculate interest on a daily basis for loans, investments, and savings accounts that compound interest daily.

2. How Does the Calculator Work?

The calculator uses the daily interest rate formula:

Where:

• \( \text{Annual Rate} \) — Annual interest rate as a decimal
• \( 365 \) — Number of days in a year
• \( \frac{1}{365} \) — Daily compounding factor

Explanation: This formula converts an annual interest rate to its equivalent daily compounded rate, accounting for the effects of daily compounding.

3. Importance of Daily Rate Calculation

Details: Calculating daily interest rates is essential for accurate financial planning, comparing different compounding periods, and understanding the true cost of loans or returns on investments with daily compounding.

4. Using the Calculator

Tips: Enter the annual interest rate as a percentage (e.g., enter 5 for 5%). The calculator will compute the equivalent daily rate. All values must be valid (annual rate ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: Why use 365 days instead of 360?
A: 365 days provides a more accurate calculation for actual daily compounding, while 360 days is sometimes used in banking for simplicity in monthly calculations.

Q2: How does daily compounding affect returns?
A: Daily compounding typically yields slightly higher returns than monthly or annual compounding due to more frequent interest calculations.

Q3: Can this formula be used for different compounding periods?
A: Yes, by changing the exponent to 1/n where n is the number of compounding periods per year (e.g., 12 for monthly, 4 for quarterly).

Q4: What's the difference between nominal and effective rates?
A: The annual rate entered is typically the nominal rate, while the calculated daily rate helps determine the effective annual rate when compounded daily.

Q5: Is this applicable to both loans and investments?
A: Yes, this calculation works for both calculating daily interest on loans and daily returns on investments that compound daily.