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Daily Interest Rate Formula:
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Daily interest rate is the interest charged or earned on a daily basis, calculated by dividing the annual interest rate by 365 days. This is commonly used in banking, loans, credit cards, and investments where interest compounds daily.
The calculator uses the daily interest rate formula:
Where:
Explanation: This formula converts an annual percentage rate (APR) into a daily rate by dividing by 365 days. For percentage input, the calculator first converts to decimal form.
Details: Calculating daily interest rates is essential for understanding the true cost of borrowing, comparing financial products, calculating daily investment returns, and understanding compound interest effects over time.
Tips: Enter the annual interest rate as a percentage (e.g., 5 for 5%). The calculator will provide both decimal and percentage formats of the daily rate. Ensure the annual rate is positive and valid.
Q1: Why divide by 365 instead of 360?
A: Most modern financial calculations use 365 days for greater accuracy, though some institutions still use 360 days for simplicity in monthly calculations.
Q2: How does daily interest affect compound growth?
A: Daily compounding can significantly increase returns or costs over time compared to monthly or annual compounding due to more frequent interest application.
Q3: Is this the same as daily periodic rate?
A: Yes, daily interest rate is often referred to as the daily periodic rate in credit card and loan agreements.
Q4: How do I calculate daily interest on a principal amount?
A: Multiply the daily rate (in decimal) by the principal amount: Daily Interest = Principal × Daily Rate.
Q5: Does this work for both simple and compound interest?
A: This calculates the daily rate for both, but compound interest requires additional calculations for accumulated interest over multiple periods.