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Compound Interest Formula:
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Daily compound interest is a method where interest is calculated and added to the principal balance every day, allowing your investment to grow at an accelerated rate compared to simple interest or less frequent compounding periods.
The calculator uses the compound interest formula with daily compounding:
Where:
Explanation: The formula calculates how much your investment will grow when interest is compounded daily, taking into account the principal, annual rate, and time period.
Details: Compound interest is a powerful financial concept that allows investments to grow exponentially over time. Daily compounding maximizes this effect by calculating interest more frequently, leading to higher returns compared to annual or monthly compounding.
Tips: Enter the principal amount in currency, annual interest rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be positive numbers.
Q1: What's the difference between daily and annual compounding?
A: Daily compounding calculates interest 365 times per year, while annual compounding calculates once per year. Daily compounding yields higher returns due to more frequent interest calculations.
Q2: How do I convert percentage rate to decimal?
A: Divide the percentage by 100. For example, 5% becomes 0.05, 7.25% becomes 0.0725.
Q3: Can I use this for different compounding frequencies?
A: This calculator is specifically designed for daily compounding. For other frequencies (monthly, quarterly), different formulas would be needed.
Q4: Is daily compounding better than continuous compounding?
A: Continuous compounding (using e^rt) provides slightly better returns, but daily compounding is more commonly used in practical financial products.
Q5: What are typical applications of daily compounding?
A: Daily compounding is commonly used in savings accounts, money market accounts, and some investment products where interest is calculated and credited daily.