1. What is the Daily Interest Formula?

The NerdWallet Daily Interest Formula calculates interest accrued over a specific number of days for any financial product. It's particularly useful for understanding how interest accumulates on loans, savings accounts, or credit cards on a daily basis.

2. How Does the Calculator Work?

The calculator uses the daily interest formula:

Where:

• \( P \) — Principal balance (in dollars)
• \( R \) — Annual interest rate (as a percentage)
• \( \text{Days} \) — Number of days interest is calculated for
• \( I \) — Calculated interest (in dollars)

Explanation: The formula first converts the annual rate to a daily rate by dividing by 365 days, 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 costs/earnings, and make informed decisions about loans, savings, and investments.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365 instead of 360?
A: NerdWallet's methodology uses actual/365 day count convention, which is standard for most personal finance products in the US.

Q2: Does this work for compound interest?
A: No, this calculates simple daily interest. For compound interest, the calculation would be more complex.

Q3: How accurate is this for leap years?
A: The 365-day convention means leap years will slightly under-calculate interest by about 0.27%.

Q4: Can I use this for mortgage calculations?
A: Most mortgages use monthly compounding, so this simple daily formula would only provide an estimate.

Q5: What about credit card interest?
A: Credit cards typically use daily compounding, but this calculator gives a close approximation of daily interest charges.