How to Calculate Daily Interest

Calculating daily interest can be useful, whether you are trying to determine the amount of interest earned or how much interest you owe on a payment. Business applications include calculating interest owed on late payments from customers or to vendors. Calculating interest in personal finances can help you estimate closing costs for a mortgage or evaluate options for savings and investment accounts. Here's how to calculate daily interest accurately for a number of different applications.

Method 1

Method 1 of 2:

Calculating Daily Compound Interest

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Unless you are withdrawing the daily interest you are accumulating, it will be added to the original amount of your principal which is a great way to save. To calculate, you will need the principal amount, the annual interest rate, the number of compounding periods per year (365 for daily) and the number of years the money will be in your account.^{[1]XResearch source}
Assign labels in column A, rows 1-5, for the Principal, Interest Rate, Period, Number of Years and Compound Interest Balance. You can expand the cell by clicking on the right line of the column number, A, B, C, etc. (Arrows will then show that you can manipulate.) These labels are for your reference only.^{[2]XResearch source}
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3
Enter the details for your specific calculation in column B, rows 1-4, to coincide with the labels. Period is 365 and the number of years is whatever you choose to calculate. Leave cell B5 (Compound Interest Balance) blank for now.^{[3]XResearch source}
- For example, principal = $2,000, interest rate = 8% or .08, compounding periods = 365 and the number of years is 5.
=B1*(1+B2/B3)^(B4*B3) and click enter. Compounded daily, the total principal and interest earned balance is $2983.52 after 5 years. You can see it is a good idea to reinvest your interest earned.^{[4]XResearch source}
5
Calculate compound interest manually. The formula to use is Initial investment * (1 + Annual interest rate / Compounding periods per year) ^ (Years * Compounding periods per year). The ^ indicates an exponent.^{[5]XResearch source}
- For example, using the same information from Step 3, principal = $2,000, interest rate = 8% or .08, compounding periods = 365 and the number of years is 5. Compound interest =2,000 * (1 + .08/365) ^ (5 * 365) = $2983.52.

Calculating Daily Interest Using a Computer

Simple Daily Interest Cheat Sheet

Daily Interest Calculator

1
Gather the information needed to calculate interest. This includes the amount of money you will be investing or saving, the length of the term and the proposed interest rates. You may have several sets of variables if your intention is to compare alternatives.^{[6]XResearch source}
- You will need to prepare a calculation for each alternative in order to complete your comparison.
2
Launch a computer spreadsheet application to help you calculate interest. You will be entering the data from Step 1 into specific cells on the spreadsheet and then setting up formulas. Once the formulas are calculated you can easily evaluate many different alternatives.^{[7]XTrustworthy SourceMicrosoft SupportTechnical support and product information from Microsoft.Go to source}
- Popular spreadsheet programs include Microsoft Excel and iWork Numbers.
- You can also find free spreadsheet applications online such as Google Docs or Zoho Sheet.
You can expand the cell by clicking on the right line of the column number, A, B, or C, etc. (Arrows will then show that you can manipulate.) These labels are for your reference only.^{[8]XResearch source}
4
Enter the details for your specific transaction in column B, rows 1-3, to coincide with the labels. Convert the percent interest to a decimal by dividing it by 100. Leave cell B4 (Daily Interest) blank for now.^{[9]XResearch source}
- The interest rate is usually shown as an annual figure; it will need to be divided by 365 in order to reach the daily interest rate.
- For example, if your principal to invest is $10,000, and your savings account is offering .5 percent interest, you will enter "10000" in cell B1 and "=.005/365" in cell B2.
- The number of periods determines how long your investment will remain in the account untouched, except for the compounding interest that is added. You can use a sample term of one year, which will be entered in cell B3 as "365."
5
Create a function in cell B4 to calculate the annual interest as a daily amount. Functions are special formulas offered by the spreadsheet designers to make your calculations easier. Do this by clicking first on cell B4 to select it and then by clicking inside the formula bar.^{[10]XResearch source}
- Type "=IPMT(B2,1,1,-B1)" in the formula bar. Press the Enter key.
- The daily interest earned on this account, for the first month, is $.1370 per day.

Method 2

Method 2 of 2:

Calculating Daily Interest Manually

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This includes the amount of money you will be investing or saving, the length of the term and the proposed interest rates. You may have several different interest rates that you want to compare.
2
Convert the percent interest rate to a decimal. Divide the number by 100 and then divide this interest rate by 365, the number of days in a year. This will give you the interest rate to use in the formula.^{[11]XResearch source}
- An annual percentage rate of .5 percent or .005, when divided by 365, is equal to .00137 percent, or .0000137.
If the principle is $10,000, when multiplied by .0000137, it is equal to $.1370. Rounded up, this account will earn approximately $.14 per day, based on these examples.^{[12]XResearch source}
Multiply the principal, $10,000, by the annual percentage rate of .5 percent or .005 to calculate interest manually. The answer is $50.00. Multiply the daily interest amount of $.1370 by 365 days; the answer is also $50.00.

Expert Q&A

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Question
How do I calculate the compound annual growth rate?
Paridhi Jain
Certified Public Accountant
Paridhi Jain is a Certified Public Accountant and the Co-Founder of Seva Ltd, a CPA firm operating in Maryland and Alabama. She has over 10 years of professional experience in the financial sector and has built a reputation for assisting small business owners navigate the intricacies of regulatory compliance, encompassing areas from company structuring and entity formation to detailed nexus determinations for income and sales tax. She is an active member of the Alabama Society of CPAs and has a certification in pre-professional accounting. She graduated Magna Cum Laude from the University of Maryland, Baltimore County with a major in Information Systems.
Paridhi Jain
Certified Public Accountant
Expert Answer
The compound annual growth rate (CAGR) concept involves envisioning yourself as a bank that has invested $100 in someone else, expecting a return of $110 by the end of the year. On December 31, when you indeed have $110, the subsequent day's earnings are based on the 10% return on the new total, not just the original $100. This compounding occurs annually, signifying that in the first year, you earn $10 (10% of the initial investment), and in the second year, you earn 10% of the updated amount, which is now $110. Consequently, you earn $11 in the second year. This process continues, representing the annual growth of your invested money.
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Tips

You can use the IPMT function to determine daily interest on a mortgage. If you are selling your house in the middle of a month, your final payoff balance will change each day. The daily interest amount can tell you what your exact payoff would be.
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You can also use the IPMT function to determine daily interest on late customer payments.
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Warnings

Laws vary by state in reference to interest rates limits and compounding of interest. For business applications, be sure to fully research the laws of the states where you do business before setting and incorporating a policy for charging interest on late payments.
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