How to Calculate Daily Interest Earned on Savings Account

What is Daily Interest?

Daily interest is the amount of money earned on a daily basis from the principal amount in a savings account. Unlike simple interest, which is calculated only on the original principal, daily interest accounts for compounding, where interest is earned on both the principal and previously earned interest.

Most savings accounts offer interest that compounds daily, meaning your balance grows incrementally each day. This can lead to significant differences in earnings compared to accounts that compound less frequently, such as monthly.

How to Calculate Daily Interest

The formula for calculating daily interest earned is:

Where:

• Principal - The initial amount of money in the account
• Daily Interest Rate - The annual interest rate divided by 365 (for daily compounding)

For example, if your account earns 2% annual interest compounded daily, the daily interest rate would be 2% ÷ 365 ≈ 0.005479% per day.

Example Calculation

Let's say you have $1,000 in a savings account with a 2% annual interest rate compounded daily. Here's how to calculate the daily interest earned:

1. Divide the annual interest rate by 365 to get the daily rate: 2 ÷ 365 ≈ 0.005479%
2. Multiply the principal by the daily rate: $1,000 × 0.005479 ≈ $5.48

So, you would earn approximately $5.48 in daily interest on $1,000 with a 2% annual interest rate compounded daily.

Interest Compounding

Compounding frequency affects how quickly your money grows. Daily compounding means your interest is calculated and added to your balance every day, which can lead to:

• Higher earnings over time compared to monthly compounding
• More frequent small increases in your balance
• Potential for earlier achievement of financial goals

However, the difference between daily and monthly compounding becomes less significant with higher interest rates or longer time periods.

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