1. What is Daily Compound Interest?

Daily compound interest is a method where interest is calculated on the initial principal and also on the accumulated interest from previous periods, with compounding occurring 365 times per year. This results in faster growth of investments compared to less frequent compounding.

2. How Does the Calculator Work?

The calculator uses the daily compound interest formula:

Where:

• \( P \) — Principal amount (initial investment in CAD)
• \( R \) — Annual interest rate (expressed as a decimal)
• \( T \) — Time period in years
• \( A \) — Maturity amount (final amount in CAD)

Explanation: The formula calculates how much an investment will grow when interest is compounded daily, which is common in Canadian financial products.

3. Importance of Compound Interest Calculation

Details: Understanding compound interest is crucial for financial planning, investment decisions, and retirement savings. Daily compounding can significantly increase returns over time compared to annual or monthly compounding.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why use daily compounding instead of annual?
A: Daily compounding results in higher returns because interest is calculated and added to the principal more frequently, allowing interest to earn interest more often.

Q2: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.

Q3: Are Canadian savings accounts typically compounded daily?
A: Many Canadian financial institutions compound interest daily, but it's important to check the specific terms of each financial product.

Q4: How does compounding frequency affect returns?
A: More frequent compounding (daily vs monthly vs annually) results in higher returns due to the compounding effect occurring more often.

Q5: Can this calculator be used for loans as well?
A: While the formula is the same, this calculator is designed for investment growth. For loans, the perspective would be different as you'd be calculating interest owed rather than earned.