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Daily Rate Formula:
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Daily interest rate is the interest rate calculated on a daily basis, derived by dividing the annual interest rate by 365 days. It's commonly used in finance for daily compounding calculations, loan interest accrual, and investment returns.
The calculator uses the daily rate formula:
Where:
Explanation: This calculation converts an annual percentage rate into its equivalent daily rate, assuming a 365-day year for precise daily compounding calculations.
Details: Daily rate calculation is essential for accurate interest accrual in daily compounding investments, credit card interest calculations, short-term loans, and financial modeling where daily interest applies.
Tips: Enter the annual interest rate as a percentage (e.g., 5 for 5%). The calculator will automatically compute the equivalent daily rate. Ensure the annual rate is a positive number.
Q1: Why divide by 365 instead of 360?
A: 365 is used for actual/actual day count convention, while 360 is used in some commercial loans. Most modern financial calculations use 365 for greater accuracy.
Q2: How is daily rate used in compounding?
A: Daily rate is multiplied by the principal daily for daily compounding, resulting in slightly higher returns than monthly or annual compounding.
Q3: What's the difference between APR and daily rate?
A: APR is the annual rate, while daily rate is APR divided by 365. Daily rate shows how much interest accrues each day.
Q4: Can I use this for credit card interest?
A: Yes, credit card companies typically use daily rate calculations to determine daily interest charges on outstanding balances.
Q5: How accurate is this calculation for leap years?
A: For most purposes, 365 days provides sufficient accuracy. For precise leap year calculations, you would divide by 366 in leap years.