Daily Compounding Savings Account Calculator

Daily Compounding Formula:

\[ FV = P \times (1 + \frac{r}{365})^{(365 \times t)} \]

Future Value (FV):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Daily Compounding?

Daily compounding is a method where interest is calculated and added to the principal balance every day. This means each day's interest calculation includes the previous day's interest, leading to faster growth of your savings compared to less frequent compounding.

2. How Does the Calculator Work?

The calculator uses the daily compounding formula:

\[ FV = P \times (1 + \frac{r}{365})^{(365 \times t)} \]

Where:

\( FV \) — Future value of the investment
\( P \) — Principal investment amount
\( r \) — Annual interest rate (in decimal form)
\( t \) — Time in years
365 — Number of compounding periods per year

Explanation: The formula calculates how much your investment will grow when interest is compounded daily, giving you the most accurate estimate of your future savings.

3. Importance of Daily Compounding

Details: Daily compounding maximizes your investment returns by applying interest to your account every day. Over time, this compounding effect can significantly increase your savings compared to monthly, quarterly, or annual compounding.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: How does daily compounding differ from monthly compounding?
A: Daily compounding calculates and adds interest every day, while monthly compounding does it once per month. Daily compounding typically yields slightly higher returns over time.

Q2: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. This calculator shows the APY equivalent for daily compounding.

Q3: Are there accounts that offer daily compounding?
A: Yes, many online savings accounts, money market accounts, and certificates of deposit (CDs) offer daily compounding interest.

Q4: How often is interest typically paid out?
A: While interest may be calculated daily, it's usually paid out monthly or quarterly, depending on the account terms.

Q5: Does this calculator account for additional contributions?
A: No, this calculator assumes a single initial investment with no additional contributions. For regular contributions, you would need a different formula.