1. What is Daily Calculated Interest?

Daily Calculated Interest refers to the interest amount computed on a daily basis using the average daily balance, annual interest rate, and number of days. This method is commonly used in banking and finance to calculate interest on loans, credit cards, and savings accounts.

2. How Does the Calculator Work?

The calculator uses the daily interest formula:

Where:

• \( ADB \) — Average Daily Balance (currency)
• \( R \) — Annual Interest Rate (%)
• \( D \) — Number of Days
• \( I \) — Interest Amount (currency)

Explanation: The formula calculates the proportional interest for a specific period based on the annual rate and actual number of days.

3. Importance of Daily Interest Calculation

Details: Accurate daily interest calculation is crucial for financial planning, understanding borrowing costs, maximizing savings returns, and ensuring fair interest assessments in various financial products.

4. Using the Calculator

Tips: Enter the average daily balance in currency, annual interest rate as a percentage, and number of days. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is average daily balance?
A: Average daily balance is the sum of each day's ending balance divided by the number of days in the billing cycle.

Q2: Why divide by 365 in the formula?
A: Dividing by 365 converts the annual interest rate to a daily rate, assuming a 365-day year.

Q3: How does this differ from monthly interest calculation?
A: Daily interest calculation provides more precise results as it accounts for daily balance fluctuations, while monthly calculation uses average monthly balances.

Q4: When is daily interest calculation typically used?
A: Commonly used for credit cards, lines of credit, and some types of loans where balances fluctuate daily.

Q5: Are there different methods for calculating daily interest?
A: Yes, some institutions may use 360-day years or different compounding methods, but the formula shown is the standard approach.