How to calculate daily interest

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How to Convert Annual Interest Rate to Quarterly Interest

Simple interest is determined by multiplying the principal by the interest rate by the period of time the principal was borrowed. To calculate simple interest per diem, you need to convert the annual rate to a daily rate. The simple interest formula does not account for the effects of interest compounding.

Divide the annual interest rate by 100 to convert to a decimal interest rate. For example, if the annual interest rate equals 1.46 percent, divide 1.46 by 100 to get 0.0146.

Divide the annual interest rate by 365 to find the daily interest rate. In this example, find the daily interest rate to be 0.00004.

Multiply the daily interest rate by the number of days over which interest occurs. In this example, if you want to calculate interest accruing for 7 days, multiply 0.00004 by 7 to get 0.00028.

Multiply the result by the amount on which the interest accrues to figure the simple interest on a per diem basis. Continuing with this example, if you want to calculate the simple interest accruing on $340, multiply $34,000 by 0.00028 to get $9.52 in simple interest accrues.

  • Teacher’s Choice: Simple Interest
  • AAA Math: Simple Interest
  • Investor.gov. “Interest.” Accessed April 2, 2020.
  • New York University Stern School of Business. “Compound Interest Calculations,” Page 1. Accessed April 2, 2020.
  • Greater Texas Credit Union. “Simple Interest.” Accessed April 2, 2020.
  • Federal Deposit Insurance Corporation. “How Do Banks Work?” Accessed April 2, 2020.
  • Consumer Financial Protection Bureau. “Your Mortgage Calculator May Be Setting You up for a Surprise.” Accessed April 2, 2020.
  • Consumer Financial Protection Bureau. “What Is a ‘Daily Periodic Rate’ on a Credit Card?” Accessed April 2, 2020.

Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by “Quicken,” “TurboTax,” and “The Motley Fool.”

How to calculate daily interest

How to calculate daily interest

What is Daily Compound Interest?

Daily compounded interest means interest is accumulated on daily basis and is calculated by charging interest on principal plus interest earned on a daily basis and therefore, it be higher than interest compounded on monthly/quarterly basis due to high frequency of compounding.

Formula

How to calculate daily interest

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For eg:
Source: Daily Compound Interest (wallstreetmojo.com)

  • A=Daily compound rate
  • P=Principal amount
  • R=Rate of interest
  • N=Time period

Generally, when someone deposits money in the bank, the bank pays interest to the investor in quarterly interest. But when someone lends money from the banks, the banks charge the interest from the person who has taken the loan in daily compounding interest. This scenario is mostly applicable in the case of credit cards.

Examples

Example #1

A sum of $4000 is borrowed from the bank where the interest rate is 8%, and the amount is borrowed for two years. Let us determine how much will be daily compounded interest calculation by the bank on loan provided.

Solution:

How to calculate daily interest How to calculate daily interest

How to calculate daily interest

Example #2

Daily compounding is practically applicable for credit card spending, which is charged by the banks on the individuals who use credit cards. Credit cards generally have a cycle of 60 days, during which time the bank does not charge any interest, but interest is charged when the interest does not pay back within 60 days. If a sum of $4000 is used using a credit card by an individual for its spending. And the interest rate is 15% per annum as the interest charged for a credit card is generally very high. And the amount is repaid by the individual after 120 days that is 60 days after the grace period is over. So the individual needs to pay the bank interest for 60 days, and he is charged at a daily compounding rate.

Solution:

How to calculate daily interest How to calculate daily interest

How to calculate daily interest

Example #3

A sum of $35000 is borrowed from the bank as a car loan where the interest rate is 7% per annum, and the amount is borrowed for five years. Let us determine how much will be daily compounded interest calculation by the bank on loan provided.

Solution:

How to calculate daily interest How to calculate daily interest

How to calculate daily interest

Relevance and Use

Generally, when someone deposits money in the bank, the bank pays interest to the investor in quarterly interest. But when someone lends money from the banks, the banks charge the interest from the person who has taken the loan in daily compounding interest. The higher the frequency, the more the interest charged or paid on the principal. It is how the banks make their money on the differential of the interest.

You can download this template from here – Excel Template

Daily Compound Interest Video

Recommended Articles

This article has been a guide to Daily Compound Interest Formula. Here we discuss how to calculate daily compound interest using its formula and examples and downloadable excel template. You can learn more about financial analysis from the following articles –

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How to calculate daily compound interest

With some types of investments you might find that your interest is compounded daily, meaning that you’re earning interest on both the principal amount and previously accrued interest on a daily basis. This is often the case with some bitcoin and crypto currency trading platforms. When interest is compounded so frequently on a fixed basis, it can mean that the interest accrued increases quickly, as every day’s interest figure is bigger than the previous day.

Daily compound interest is calculated using a simplified version of the compound interest formula.

Formula for daily compound interest

The formula used for daily compound interest, with a fixed daily interest rate, is:

  • A = the future value of the investment
  • P = the principal investment amount
  • r = the daily interest rate (decimal)
  • t = the number of days the money is invested for

Example investment

Let’s use the example of $1,000 at 0.4% daily for 365 days.

  • P = 1000
  • r = 0.4/100 = 0.004
  • t = 365

Let’s put these into our formula:

A = 1000(1+0.004) 365

A = 1000 * 4.2934377972993

To get the total interest, we deduct the principal amount (1000) from the future value. This gives us interest of $3293.44

What is the daily reinvest rate?

The daily reinvest rate is the percentage figure that you wish to keep in the investment for future days of compounding. As an example, you may wish to only reinvest 80% of the daily interest you’re receiving back into the investment and withdraw the other 20% in cash.

Let’s look at an example. If your initial investment is $5,000 with a 0.5% daily interest rate, your interest after the first day will be £25. If you choose an 80% daily reinvestment rate, $20 will be added to your investment balance, giving you a total of $5020 at the end of day one. The remaining $5 will be withdrawn as cash.

FAQ – Deduct w/e from time

The option to deduct weekends from the years, months, and days figure you’ve entered, allows you two options for compounding when excluding weekends. Let’s look at each option with an example of a one-year calculation.

  1. You want to compound for one year minus weekends (one year, net of weekends). This means your figure will compound for around 261 BUSINESS days, with an end date 365 days from your start date, depending on when the weekends fall.
  2. You want to compound for one year, with weekends excluded from the time (one year gross). This means your figure will compound for 365 BUSINESS days, with an end date around 509 days from your start date, depending on when the weekends fall.

If you have any questions about this daily compound interest calculator, please get in touch.

Enter a loan balance or principle, the total length of the loan, and the annual interest rate (%) to calculator the daily interest owed on the loan.

Daily Interest Formula

The following formula is used by the calculator above to determine the daily interest of a loan or mortgage.

DI = LB X AIR / 365

  • Where DI is the daily interest ($)
  • LB is the loan balance ($)
  • AIR is the annual interest rate
  • 365 is the number of days in a year

This formula calculates the total interest you would pay each day on a loan throughout its lifetime. This will not equal your actual payments since that is most often paid in terms of months.

Daily Interest Definition

Daily interest is the average daily interest paid on a loan or credit based on the annual interest rate and total loan balance.

How to calculate daily interest?

How to calculate daily interest?

    First, determine the loan balance.

Determine the total loan balance for 1 year. It’s important to note that this is the annual loan balance and not the overall loan balance.

Next, determine the annual interest rate.

Calculate or determine the annual interest rate.

Finally, calculate the daily interest.

Using the formula above, calculate the daily interest.

Daily interest is the average daily interest paid on a loan or credit based on the annual interest rate and total loan balance.

This Daily Interest Loan Calculator will help you to quickly calculate either simple or compounding interest for a specified period of time.

You can either calculate daily interest for a single loan period, or create a loan schedule made up of multiple periods, each with their own time-frames, principal adjustments, and interest rates.

Plus, you can print out a copy of the running balance schedule so you can just start from where you left off on your next visit.

All these features make the calculator ideal for tracking personal loan interest, promissory note interest, or other types of owner-financed, interest-bearing notes.

And finally, in case you’re wondering how this calculator came into being, it was born out of the following email I received:

I need a simple interest, daily accumulated interest to do a running balance due including the principal. Spreadsheet?

Example, I loan a customer $13,000.00 on a note, 10% annual (360 days) simple interest. The loan is usually secured, sometimes not. Generally, these are 6-month notes, but due dates are not important. No regular payments, monthly or otherwise.

Here is what and where I need help on.

At some point in time, my borrower may send me a payment of $9,050.00 which is applied to the note and then two months later borrows $2,750.00, increasing the note. Then the next month, the borrower sends me $500.00 for the next three months running to be applied to the note.

I love getting those kinds of emails! They get my wheels turning and allow me to serve others through a work I love.

Daily Interest Calculator

Calculate daily interest between dates or number of days, simple or compounding, and for one or multiple periods.

Selected Data Record:

A Data Record is a set of calculator entries that are stored in your web browser’s Local Storage. If a Data Record is currently selected in the “Data” tab, this line will list the name you gave to that data record. If no data record is selected, or you have no entries stored for this calculator, the line will display “None”.

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Instructions

How to use the Daily Interest Calculator

IMPORTANT: Numeric entry fields must not contain dollar signs, percent signs, commas, spaces, etc. (only digits 0-9 and decimal points are allowed).

Click the Terms tab above for a more detailed description of each entry.

Step #1

Enter the loan name (optional), starting amount, starting annual interest rate, and starting date.

Step #2

Select either Simple or Compounding interest, and either 360, 364, or 365 for the days in the year.

Step #3

If a principal adjustment occurred (payment or additional funds borrowed), select either Decrease or Increase and enter the corresponding amount.

Step #4

Enter the period’s ending date or specify the number of days since the start (or last period) date, and then click the Calculate Daily Interest button.

Step #5

If you are creating a schedule of periods to track the note’s running balance, click the Add Period To Loan History button and repeat the period entry process for each interest period you wish to add (be sure to add periods in chronological order, from first to last).

Step #6

Click the Printer Friendly Report button to print out the running balance schedule so you can start from where you left off on your next visit.

Glossary

Fields, Terms, and Definitions.

Clicking the “Reset” button will restore the calculator to its default settings.

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Click the ? tab for Help & Tools instructions.

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How to Calculate Daily Interest

Now, if you’re like me, and need to know what’s going on “under the hood”, here is how I set up the calculator to calculate daily interest.

How To Calculate Daily Interest

To illustrate how to calculate daily interest, I’ll use the following example:

  • Original principal: $10,000
  • Annual Interest Rate: 10%
  • Number of days: 90
Simple Daily Interest

To calculate the daily simple interest on a $10,000, 10% note for 90 days (please allow for rounding differences):

  1. Convert the percentage rate to a decimal: 10 Г· 100 = 0.10
  2. Convert the annual rate to a daily rate: 0.10 Г· 365 = 0.00027397
  3. Multiply the daily rate by the principal: 10000 Г— 0.00027397 = $2.74
  4. Multiply the daily interest by the number of days: $2.74 Г— 90 = $246.60

Since we’re calculating simple interest, the $246.60 is not added to the principle for any subsequent periods.

Compounding Daily Interest

To calculate the daily compounding interest on a $10,000, 10% note for 90 days (please allow for rounding differences):

  1. Convert the percentage rate to a decimal: 10 Г· 100 = 0.10
  2. Convert the annual rate to a daily rate: 0.10 Г· 365 = 0.00027397
  3. Add 1 to the daily rate: 1 + 0.00027397 = 1.00027397
  4. Raise the daily rate factor to the number of days: 1.00027397 90 = 1.0249538
  5. Subtract 1 from the raised factor: 1.0249538 – 1 = 0.0249538
  6. Multiply the principal by the 90-day rate factor: 10000 Г— 0.0249538 = $249.54

Since we’re calculating compound interest, the $249.54 is added to the principal for the next compounding period.

How Is Interest Calculated for a Mortgage?

Calculating daily interest is similar to figuring out monthly or weekly interest. The only difference is that the rate is divided by the number of days instead of the number of months. When your mortgage is calculated daily, instead of monthly, you pay a slightly different amount of interest on your monthly statements because the number of days in each month varies. If you make a principal payment in the middle of the month, it’ll immediately change the dollar amount of your interest payment for the rest of the month.

TL;DR (Too Long; Didn’t Read)

In order to calculate the amount of interest that your mortgage is accruing on a daily basis, you will need to partition your annual interest rate into 365 equal sections. This will then allow you to determine the specific dollar amount of interest that is being added to your principal balance.

Check Your Remaining Principal

You can find this information on your mortgage statement. The principal balance is the amount you borrowed, less the amount you have paid back. You are charged interest only on the amount left on your loan.

Find Your Daily APR

Your annual percentage rate, or APR, is also listed on your statement. For example, if the interest rate is 8 percent, divide 8 by 365, which equals 0.022. This will give you the daily mortgage rate, since their are 365 days in a year.

Divide the result by 100 to convert a decimal. For example, divide 0.022 by 100 to get 0.00022, the daily rate in decimal form.

Calculate the Daily Interest

Multiply your principal balance by your daily rate in decimal form. Assuming a principal balance of $234,000, the daily interest on our sample loan is $234,000 times 0.00022, which equals $51.48. This is the amount of money you’ll pay in interest each day while your principal is at its current balance. It’ll change to a lower number the next time you make a principal payment.

Calculate the Monthly Interest

Multiply the daily interest by the number of days in your payment period to calculate the interest that will be charged for the month. If it’s February, then the interest cost of the sample loan is 28 times $51.48, which equals $1,441. You may get a more accurate result by using an online calculator, as decimals won’t be dropped or rounded as they usually are when calculating manually.

Although it may seem like these small numerical details won’t make much of a difference, it is important to remember that even the smallest of numerical adjustments can result in significant changes over a lengthy span of time, such as a year.

The Daily Periodic Rate (DPR) on your credit card could help you figure out how much interest you are paying on your balance each day. Although credit card companies usually calculate your interest charges using an Annual Percentage Rate (APR), it is not uncommon to see daily periodic rate charges broken down on your monthly statement.

Understanding the daily periodic rate on your credit card could help you understand more about how compounded interest charges affect your daily average balance. Keeping these charges in mind, you may be able to pinpoint which credit cards are costing you the most in compounded interest. You’ll also find out how much money it is costing you each day to borrow from your current credit card issuer.

Below, you’ll find some information on why it may be useful to calculate the daily periodic rate of your credit card. Additionally, you’ll also learn how to do so in three simple steps in the event that this information is not calculated for you on your monthly statement.

What is daily periodic rate?

A daily periodic rate defines the amount of interest you are paying on your credit card balance at the end of each day. Each credit card has a different APR or DPR and these rates could vary between issuers due to many factors. Each day’s interest charges are added together to determine the total amount for each billing cycle. This interest rate can also be stated as an annual rate on your credit card statements.

Why should I calculate my daily periodic rate?

Figuring out how your daily interest is being calculated on a credit card could help you pinpoint which credit cards you should prioritize paying down first. It may be quite eye-opening to find out that you are paying a rather high daily rate on a credit card balance that you have not paid off yet. These calculations could also help you understand whether it is worth putting certain purchases on that specific credit card as well as how much your credit card balance is growing and costing you at the end of each day.

How do I calculate my daily periodic rate?

Your daily periodic interest can be calculated by dividing your Annual Percentage Rate (APR) by the number of days that are taken into account for the year, this is typically 360 or 365 days depending on your credit card issuer. You can calculate your daily period rate in three steps as follows:

  1. Confirm the current APR rate on your credit card: Look at your monthly statements to find your current Annual Percentage Rate.
  2. Divide this percentage by 365: Once you have found the APR, divide it by 365 (the number of days in a year) to find out your daily periodic rate. Take for example a credit card with an APR of 23.99%. Using the above calculation, the calculated DPR would be .0657%.
  3. Calculate your average daily balance: Many credit card issuers will use the average daily balance to calculate your monthly finance charge for a given billing cycle. Using this method, your credit card balance is averaged over the entire billing cycle. This numerical average is then multiplied by the daily periodic rate and then by the number of days in the billing cycle.

Know how much you’re earning to better plan your savings goals.

May 13, 2019 | 3 min read

Wondering how to calculate savings interest? Nowadays there are plenty of online monthly savings calculators that do the math for you. But learning to make sense of the numbers can help you understand the specifics of why you are receiving as much (or as little) as you are.

How do you calculate monthly interest earned on a savings account?

Calculating your monthly interest earned starts with knowing the basic equations for calculating interest:

Simple Interest: A = P x r x t

Compound Interest: A = P(1+r/n) nt

You may recognize the equation from high school algebra—remember when your teacher said you’d use it in real life some day? Well, today’s the day!

While it looks daunting, the equation uses variables that can easily be decoded. The variables are:

  • P: your principal deposit, or the original balance of your account
  • r: the interest rate of your account in decimal format
  • n: the number of times your bank compounds interest in a year
  • t: the time, in years, you want to calculate for
  • A: the amount of money you’ll have in your bank account after interest is paid 1

But before you break out your calculator, it may be helpful to understand the two different types of interest and how they can earn you money.

The two types of interest

While it may seem like a couple of pennies now, interest can add up over time. Those pennies turn into dollars, then into tens of dollars, and well, you get the rest. Whether you are a strict saver who doesn’t touch a cent of their savings or a planner who likes to save for specific life events or goals, figuring out how to calculate monthly interest on a savings account starts with a basic understanding of simple and compound interest.

Simple Interest 2 Compound Interest 2
Principal Deposit $10,000 $10,000
Interest Rate 1% 1%
1 month> $10,100 $10,100
2 months $10,200 $10,201

Simple Interest

Simple interest is money earned on the original amount of your deposit. 4 It doesn’t account for any interest you earn over time and will always be calculated based on your principal deposit, or the original amount of money deposited into your account, as long as you don’t add to or subtract from the principal balance. If you opened a savings account with $10,000 and had a monthly interest rate of 1%, you would have $10,100 in your account by the end of the month. The next month, you would have $10,200 because simple interest only earns you money on the principal balance of $10,000.

Compound Interest

Compound interest calculates your interest using your principal balance plus any interest you’ve already earned over a certain amount of time. If your account is compounded daily, your bank will usually calculate your interest earned every day, and if your account is compounded monthly or annually, your bank usually will calculate your interest once per month or year. 5 With this method, interest usually grows faster over time. If you opened a savings account with the same deposit and rate as the example above, you would also earn $100 in interest during your first month. But the following month, the bank would give you 1% of your new balance—$10,100. This would bring your total balance to $10,201.

Depending on your bank, your account may calculate and collect interest weekly, monthly or yearly. The more often your bank compounds, the more your balance will grow.

How much interest will I get on $1,000 a year in a savings account?

Generally, traditional savings accounts use compound interest 6 , so to calculate how much annual interest you’ll earn on $1,000 use this equation: A = P(1+r/n) nt

If you have an account with $1,000 that compounds monthly at a 1% interest rate, first you would identify all your variables:

A = the total amount you are trying to find

P = your principle amount of $1,000

r = your interest rate in decimal format 0.01 (divide 1 by 100)

n = your bank compounds monthly, so it would compound 12 times a year

t = you are looking to find your interest earned of 1 year

Then plug it into the equation: A = 1,000(1+ 0.01/12) (12 X 1)

And finally, type the equation into a calculator—or use a pencil and paper if you’d like—to get your total amount of $1,010.05.

While it may feel disheartening to see your interest is only $10.05, imagine what can happen over years of saving. If you’re looking for faster ways to save, other savings vehicles like money market accounts (MMAs) and certificates of deposits (CDs) may be a better fit for you.

Growing your savings over time

Learning how to calculate interest earned on savings is a process, and sometimes it’s just easier to have a compound savings calculator do the math for you. If you understand more about how interest works, managing your money can be easier.

This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.