1. What is Daily Compound Interest?

Daily compound interest means that interest is calculated on both the initial principal and the accumulated interest from previous periods, with the calculation happening every day.

2. How Does the Calculator Work?

The calculator uses the daily compound interest formula:

Where:

• \( P \) — Principal amount ($)
• \( r \) — Annual interest rate (in decimal)
• \( d \) — Time period in days
• 365 — Number of compounding periods per year

Explanation: The formula calculates how much interest will accumulate when interest is compounded daily on a principal amount over a specified number of days.

3. Importance of Daily Compounding

Details: Daily compounding results in slightly higher returns than monthly or annual compounding because interest earns interest more frequently. This effect becomes more significant over longer time periods.

4. Using the Calculator

Tips: Enter principal in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and time period in days. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does daily compounding compare to monthly?
A: Daily compounding yields slightly higher returns than monthly compounding because interest is calculated more frequently.

Q2: What's the difference between APR and APY with daily compounding?
A: APR is the annual rate without compounding, while APY includes compounding effects. With daily compounding, APY will be higher than APR.

Q3: How accurate is this calculator?
A: It provides precise mathematical calculations, but actual bank calculations may vary slightly due to rounding methods or different day-count conventions.

Q4: Can I use this for loans as well as savings?
A: Yes, the same formula applies to debt that compounds daily, though you would interpret the results as interest owed rather than earned.

Q5: Why divide by 365 in the formula?
A: This converts the annual rate to a daily rate by dividing by the number of days in a year (some calculations use 360 days instead).