1. What is Daily Interest Rate?

The daily interest rate represents the effective interest rate applied on a daily basis when interest compounds daily. It converts an annual interest rate into its equivalent daily compounding rate.

2. How Does the Calculator Work?

The calculator uses the daily rate formula:

Where:

• \( r \) — Annual interest rate (as a decimal)
• \( 365 \) — Number of days in a year

Explanation: This formula calculates the daily compounding rate that, when applied 365 times, would yield the same result as the annual rate.

3. Importance of Daily Rate Calculation

Details: Daily interest rate calculation is essential for understanding true compounding effects, comparing different compounding frequencies, and calculating daily interest accrual for loans, investments, and savings accounts.

4. Using the Calculator

Tips: Enter the annual interest rate as a percentage (e.g., enter "5" for 5%). The calculator will provide both decimal and percentage formats of the daily rate.

5. Frequently Asked Questions (FAQ)

Q1: Why use 365 days instead of 360?
A: 365 days represents the actual number of days in a year, providing more accurate daily compounding calculations for most financial applications.

Q2: How does daily compounding affect overall returns?
A: Daily compounding typically yields slightly higher effective returns than annual compounding due to more frequent compounding periods.

Q3: Can I use this for different compounding frequencies?
A: This calculator specifically calculates daily compounding. For monthly, quarterly, or other frequencies, different formulas apply.

Q4: What's the difference between nominal and effective daily rate?
A: This calculator provides the effective daily rate that accounts for compounding, which differs from simply dividing the annual rate by 365.

Q5: Is this applicable to both loans and investments?
A: Yes, the daily rate calculation works for both borrowing costs and investment returns when interest compounds daily.