1. What is the Daily Interest Calculation?

The daily interest calculation determines how much interest accrues on a principal amount each day based on an annual interest rate. This is commonly used for UK financial products like savings accounts, loans, and credit cards.

2. How Does the Calculator Work?

The calculator uses the daily interest formula:

Where:

• \( P \) — Principal balance (GBP)
• \( R \) — Annual interest rate (as a decimal)
• \( \text{Days} \) — Number of days
• \( I \) — Calculated interest (GBP)

Explanation: The formula divides the annual rate by 365 to get the daily rate, then multiplies by the principal and number of days.

3. Importance of Daily Interest Calculation

Details: Understanding daily interest helps consumers compare financial products, estimate earnings on savings, and calculate borrowing costs more accurately.

4. Using the Calculator

Tips: Enter principal in GBP, annual interest rate as a percentage (e.g., 5 for 5%), and number of days. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365 instead of 360?
A: UK financial institutions typically use 365 days per year for interest calculations, unlike some other countries that use 360 days.

Q2: Does this account for compound interest?
A: No, this calculates simple daily interest. For compound interest, each day's interest would be added to the principal for the next day's calculation.

Q3: What's the difference between AER and gross rate?
A: AER (Annual Equivalent Rate) includes compounding effects, while gross rate is the simple annual rate before compounding.

Q4: How accurate is this for leap years?
A: For most UK financial products, interest is calculated using 365 days even in leap years. Check your product terms for specifics.

Q5: Can I use this for mortgage calculations?
A: This provides a basic estimate, but UK mortgages often use more complex calculations including payment schedules and compounding.