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Annual Interest Formula:
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The daily to annual interest rate conversion calculates the effective annual rate when interest compounds daily. This provides the true annual yield, accounting for the effects of compounding throughout the year.
The calculator uses the compound interest formula:
Where:
Explanation: The formula accounts for daily compounding by raising the daily growth factor to the power of 365 days, then subtracting the original principal to get the pure interest component.
Details: Converting daily rates to annual equivalents is essential for comparing different investment products, understanding true borrowing costs, and making informed financial decisions across various compounding frequencies.
Tips: Enter the daily interest rate as a percentage (e.g., for 0.05% daily, enter 0.05). The calculator will compute the effective annual rate considering daily compounding.
Q1: Why use 365 days instead of 360?
A: 365 days provides the actual annual compounding effect for most calendar years, while 360 is sometimes used in banking for simplicity but is less accurate.
Q2: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't include compounding, while APY (Annual Percentage Yield) does. This calculator gives you the APY equivalent.
Q3: How does compounding frequency affect returns?
A: More frequent compounding (daily vs monthly) results in higher effective returns due to interest earning interest more often.
Q4: Can this be used for loan calculations?
A: Yes, this works for both investment returns and loan costs when interest compounds daily.
Q5: What if the rate compounds more than daily?
A: For continuous compounding, use the formula: \( Annual = e^{(Daily\ Rate \times 365)} - 1 \), where e is Euler's number.