Like it? Share it:
f
๐
P
in
Disclaimer: Whilst every effort has been made in building our calculator tools, we are not to be held liable for any damages or monetary losses arising out of or in connection with their use. Full disclaimer.
What is daily compound interest?
With compound interest, the interest you have earned over a period of time is calculated and then credited back to your starting account balance. In the next compound period, interest is calculated on the total of the principal plus the previously accumulated interest.
The cool thing about this interest is a cyclical and snowballโlike effect: the older your investment grows, the more you benefit. The interest on the interest, if left free to compound, adds fuel to your gains over time, and the compounding continues faster and faster.
When someone talks of daily compound interest, they really mean that the interest is calculated daily, meaning that interest is computed at the end of each day on the balance in the account on that day. While some banks do this, most credit card companies also use daily compounding on balances.
It's very important to note that compounding frequency can make a big difference to the final total. For example, if you invest $10,000 for 10 years, earning 5% interest per year, the amount of interest you earn will depend greatly on the compounding frequency:
- Annual compounding (1x/year): $16,288.95
- Monthly compounding (12x/year): $16,470.09
- Daily compounding (365x/year): $16,486.65
Examples of financial accounts that use daily compounding include savings accounts, money market accounts, and some certificate of deposit (CD) accounts.
How to calculate daily compound interest
Daily compound interest is calculated using a simplified version of the compound interest formula. To begin your calculation, take your daily interest rate and add 1 to it. Then, raise that figure to the power of the number of days you want to compound for. Subtract the starting balance from your result if you want to see just the interest figure.
Note that if you wish to calculate future projections without compound interest, we have a calculator for simple interest without compounding.
Let's see it in a formula below.
Questions about our calculator
Here are some frequently asked questions to assist you in using our daily compound interest calculator.
What is the daily interest rate?
The daily interest rate is the percentage figure your bank uses to work out the amount of compound interest accrued on your balance daily. To find the daily rate yourself, take your annual percentage rate (APR) and divide it by 365 (or 360 for some banks). For example, an annual rate of 5% would give a daily rate of approximately 0.0137%.
Calculating weekdays from calendar dates
It is easy to work out your time in calendar days by looking at the number of days in the period. For this, you can use our Days Between Dates Calculator. You can also fine-tune your calculations using our Date Calculator.
Is the year 365 or 366 days?
The calculator offers the option of using 365 or 360 days in a year. Most banks use 365 days per year for their interest calculations, while a few others use 360 (also known as the "Banker's year"). The key difference is that 360-day calculations result in a slightly higher effective interest rate.
And finally...
I hope this tool helps you with your compound interest calculations. If you find the calculator useful, I'd appreciate it if you could take a moment to share it on your favorite social media platform. Thanks for using The Calculator Site!