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Daily Interest Formula:
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The Daily Interest From AER calculator converts an Annual Equivalent Rate (AER) into its equivalent daily compounding rate. This is essential for understanding how interest accrues on a daily basis in savings accounts, investments, and loans that compound daily.
The calculator uses the daily compounding formula:
Where:
Explanation: This formula calculates the daily interest rate that, when compounded daily for 365 days, equals the given AER.
Details: Understanding the daily equivalent of an AER helps investors and savers compare different financial products, calculate daily interest earnings, and make informed decisions about savings and investments.
Tips: Enter the Annual Equivalent Rate (AER) as a percentage. The calculator will compute the equivalent daily compounding rate. AER must be a non-negative value.
Q1: What is the difference between AER and APR?
A: AER (Annual Equivalent Rate) includes compound interest and shows the true annual return, while APR (Annual Percentage Rate) typically does not include compounding effects.
Q2: Why use 365 days instead of 360?
A: 365 days represents the actual number of days in a year, providing a more accurate calculation for daily compounding in most financial contexts.
Q3: Can this calculator be used for loans?
A: Yes, it can calculate the daily interest rate for loans that compound daily, though most consumer loans use monthly compounding.
Q4: How accurate is the daily rate calculation?
A: The calculation is mathematically precise for daily compounding. The result shows the exact daily rate needed to achieve the given AER.
Q5: What if interest compounds more frequently than daily?
A: For continuous compounding, a different formula (using natural logarithms) would be required, but daily compounding is the most common frequency.