Home
Back
Daily Rate Formula:
| From: | To: |
The Daily Percentage Rate is the daily equivalent of an annual percentage rate (APR). It converts an annual interest rate into a daily compounding rate, allowing for accurate calculation of interest that compounds daily.
The calculator uses the daily rate formula:
Where:
Explanation: This formula converts an annual rate to a daily rate by taking the 365th root of (1 + APR) and subtracting 1, accounting for daily compounding effects.
Details: Calculating the daily rate is essential for understanding how interest compounds on a daily basis, which is common in credit cards, savings accounts, loans, and investments. It provides a more accurate picture of actual interest costs or earnings over time.
Tips: Enter the Annual Percentage Rate (APR) as a percentage value. The calculator will automatically convert it to decimal form and compute the equivalent daily rate. All values must be valid (APR ≥ 0).
Q1: Why use 365 days instead of 360?
A: 365 days provides a more accurate calculation for annual rates since there are 365 days in a year. Some financial institutions use 360 days for simplicity, but 365 is more precise.
Q2: How does daily compounding affect total interest?
A: Daily compounding results in slightly higher effective interest compared to annual compounding due to the compounding effect occurring more frequently.
Q3: Can I use this for different compounding periods?
A: This formula is specifically for daily compounding. For monthly compounding, you would use (1 + APR)^{1/12} - 1, and for quarterly compounding, (1 + APR)^{1/4} - 1.
Q4: What's the difference between APR and APY?
A: APR is the annual rate without compounding, while APY (Annual Percentage Yield) includes the effects of compounding. The daily rate helps convert between them.
Q5: Is this applicable to all types of loans and investments?
A: This calculation is most relevant for financial products that compound interest daily, such as credit cards, daily interest savings accounts, and certain types of loans.