• Skip to primary navigation
  • Skip to content
  • Skip to primary sidebar
  • Skip to footer
EDUCBA

EDUCBA

MENUMENU
  • Resources
        • Investment Banking

          • Investment Banking Jobs Offer
          • Current Ratio
          • Discounted Cash Flows
        • Investment Banking
        • Finance Formula

          • CFA vs FRM
          • Net Working Capital Formula
          • Free Cash Flow to Firm
        • Finance Formula
        • Valuation

          • Equity Research Career
          • Return on Equity
          • Methods to calculate WACC
        • Finance Valuation
        • Others

          • Resources (A to Z)
          • Accounting Fundamentals
          • Corporate Finance Basics
          • Financial Modeling in excel
          • Credit Research Fundamentals
          • Asset Management Tutorial
          • Trading for dummies
          • View All
  • Free Courses
  • All Courses
        • Certification Courses

          Financial Analyst Course
        • All in One Bundle

          Financial-Analyst-Bundle
        • Investment Banking Training

          Investment-Banking-Training
        • Others

          • Financial Modeling Course
          • Equity Research Course
          • Private Equity Training Course
          • Business Valuation Course
          • Mergers and Acquisitions Course
          • View All
  • 250+ Courses All in One Bundle
  • Login

Daily Compound Interest Formula

Home » Finance » Blog » Finance Formula » Daily Compound Interest Formula

Daily Compound Interest Formula

Daily Compound Interest Formula (Table of Contents)

  • Daily Compound Interest Formula
  • Examples of Daily Compound Interest Formula (With Excel Template)
  • Daily Compound Interest Formula Calculator

Daily Compound Interest Formula

Compounding is the effect where an investment earns interest not only on the principal component but also gives interest on interest. So compounding is basically Interest on interest. When we say that the investment will be compounded annually, it means that we will earn interest on the annual interest along with the principal. Daily compounding is basically when our daily interest/return will get the compounding effect. The concept is such that it assumes that the interest earned every day is reinvested at the same rate and will get increased as the time passes. That is the reason that if we annualized the daily compound interest, it will be always higher than the simple interest rate.

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Formula For daily compound interest:

Generally, the rate of interest on investment is quoted on per annum basis. So the formula for an ending investment is given by:

Ending Investment = Start Amount * (1 + Interest Rate) ^ n

Where n – Number of years of investment

This formula is applicable if the investment is getting compounded annually, means that we are reinvesting the money on an annual basis. For daily compounding, the interest rate will be divided by 365 and n will be multiplied by 365, assuming 365 days in a year.

So

Ending Investment = Start Amount * (1 + Interest Rate / 365 ) ^ (n * 365)

Daily Compound Interest = Ending Investment – Start Amount
Daily Compound Interest = [Start Amount * (1 + (Interest Rate / 365)) ^ (n * 365)] – Start Amount
Daily Compound Interest = [Start Amount * (1 + Interest Rate) ^ n] – Start Amount

Examples of Daily Compound Interest Formula (With Excel Template)

Let’s take an example to understand the calculation of Daily Compound Interest in a better manner.

Popular Course in this category
Cyber Week Sale
All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) 250+ Online Courses | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (3,296 ratings)
Course Price

View Course

Related Courses
Finance for Non Finance Managers Course (7 Courses)Investment Banking Course (117 Courses, 25+ Projects)Financial Modeling Course (16 Courses, 15+ Projects)
You can download this Daily Compound Interest Template here – Daily Compound Interest Template

Daily Compound Interest Formula – Example #1

Let say you have $1000 to invest and you can leave that amount for 5 years. Financial institution in which you are depositing the money is offering you 10% interest rate which will be compounded daily. Calculate the Daily Compound Interest.

Daily Compound Interest Formula Example 1-1

Solution:

For Daily Compounding:

Ending Investment is calculated using the formula given below

Ending Investment = Start Amount * (1 + Interest Rate / 365 ) ^ (n * 365)

calculation of Ending Investment for example 1

  • Ending Investment = $1,000 * (1 + (10% / 365)) ^ (5 * 365)
  • Ending Investment = $1,648.61

Daily Compound Interest is calculated using the formula given below

Daily Compound Interest = Ending Investment – Start Amount

Daily Compound Interest Formula Example 1-3

  • Daily Compound Interest =$1,648.61 – $1,000
  • Daily Compound Interest = $648.61

Daily compound interest which you have earned $648.60.

If the given rate is compounded annually, then

For Annual Compounding

Ending Investment is calculated using the formula given below

Ending Investment = Start Amount * (1 + Interest Rate) ^ n

calculation of Ending Investment for annual compounding

  • Ending Investment = $1,000 * (1 + 10%) ^ 5
  • Ending Investment = $1,610.51

Daily Compound Interest is calculated using the formula given below

Daily Compound Interest = Ending Investment – Start Amount

Daily Compound Interest Formula Example 1-5

  • Daily Compound Interest =$1,610.51 – $1,000
  • Daily Compound Interest = $610.51

So you can see that in daily compounding, the interest earned is more than annual compounding.

Daily Compound Interest Formula – Example #2

Let say you have got a sum of amount $10,000 from a lottery and you want to invest that to earn more income. You do not need that funds for another 20 years. You approached 2 banks which gave you different rates:

  • Bank 1: Interest Rate: 12.5% Compounding Daily
  • Bank 2: Interest Rate: 12.5% Compounding Annually

Solution:

Interest Rate: 12.5% Compounding Daily

Daily Compound Interest Formula Example 2-1

Ending Investment is calculated using the formula given below

Ending Investment = Start Amount * (1 + Interest Rate / 365 ) ^ (n * 365)

calculation of Ending Investment for bank 1

  • Ending Investment = $10,000 * (1 + (12.5% / 365)) ^ (20 * 365)
  • Ending Investment = $121,772.81

Daily Compound Interest is calculated using the formula given below

Daily Compound Interest = Ending Investment – Start Amount

Daily Compound Interest Formula Example 2-3

  • Daily Compound Interest = $121,772.81 – $10,000
  • Daily Compound Interest = $111,772.81

Interest Rate: 12.5 % Compounding Annually

Daily Compound Interest Formula Example 2-4

Ending Investment is calculated using the formula given below

Ending Investment = Start Amount * (1 + Interest Rate) ^ n

calculation of Ending Investment for bank 2

  • Ending Investment = $10,000 * (1 + 12.5%) ^ 20
  • Ending Investment = $105,450.94

Daily Compound Interest is calculated using the formula given below

Daily Compound Interest = Ending Investment – Start Amount

Daily Compound Interest Formula Example 2-6

  • Daily Compound Interest = $105,450.94 – $10,000
  • Daily Compound Interest = $95,450.94

So If we see, effectively, you are earning more if you choose to invest in Bank 1 due to daily compounding.

Explanation

Compounding is a very intriguing concept in finance but there is some assumption which sometimes does not make much practical sense. Like in daily compounding, it is assumed that all the interest amount will be reinvested at the same rate for the investment period but actually, the interest rate never remains the same and varies. Because of which we might not be able to invest our money at the same rate and our effective return might differ. So basically, this is kind of theoretical representation which tells us that what we might end up with if all the money is reinvested at the end of each day at that rate.

Relevance and Uses of Daily Compound Interest Formula

Compounding as a whole is helpful in earning interest on interest, which makes logical sense. In simple interest, you earn interest on the same principal for the investment term and you basically lose out income which you can earn on that additional amount. So for example: if you have $100 and the simple interest rate is 10%, for 2 years, you will have 10%*2*100 = $20 as interest. But if you invest that only for 1 year, then you will earn $10 and then again you invest $110 at 10% for a year, you will have $11 interest in 2nd year. So in total, you have $21 interest and you were losing out on $1 interest in case of simple interest. For daily compounding, we can say that, the more the merrier. As you increase the compounding frequency, you will effectively earn more money since your money will go through more rounds of compounding.

Daily Compound Interest Formula Calculator

You can use the following Daily Compound Interest Calculator

Start Amount
Interest Rate
n
Daily Compound Interest
 

Daily Compound Interest = [Start Amount * (1 + Interest Rate)n]-Start Amount
= [0 * (1 + 0)0]-0 = 0

Recommended Articles

This has been a guide to Daily Compound Interest Formula. Here we discuss How to Calculate Daily Compound Interest along with practical examples. We also provide Daily Compound Interest Calculator with downloadable excel template. You may also look at the following articles to learn more –

  1. Guide To Continuous Compounding Formula
  2. Examples of Nominal Interest Rate Formula
  3. How To Calculate Interest Expense Using Formula
  4. Calculator For Times Interest Earned Formula
  5. Interest vs Dividend | Top 8 Key Differences You Should Know

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

0 Shares
Share
Tweet
Share
Reader Interactions
Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar
Finance Blog Tutorials
  • Finance Formula
    • Marginal Benefit Formula
    • Depreciation Formula
    • Cost-Benefit Analysis Formula
    • Percentage Change Formula
    • Levered Beta Formula
    • Shares Outstanding Formula
    • Capital Gain Formula
    • Convexity Formula
    • Gross Income Formula
    • Net Exports Formula
    • Producer Surplus Formula
    • Accounting Rate of Return Formula
    • Net Cash Flow Formula
    • Labor Force Participation Rate Formula
    • Moving Average Formula
    • Net Worth Formula
    • Accounting Profit Formula
    • Disposable Income Formula
    • Discount Formula
    • Average Variable Cost Formula
    • Total Variable Cost Formula
    • Product Cost Formula
    • Marginal Product Formula
    • Break-Even Sales Formula
    • Return on Sales Formula
    • Cost of Goods Manufactured Formula
    • Average Fixed Cost Formula
    • Stock Turnover Ratio Formula
    • Operating Ratio Formula
    • Equity Ratio Formula
    • Net Present Value Formula
    • Aggregate Demand Formula
    • Volatility Formula
    • Marginal Product of Labor Formula
    • Z Test Statistics Formula
    • Standard Cost Formula
    • Velocity of Money Formula
    • Invested Capital Formula
    • Unlevered Beta Formula
    • Bank Reconciliation Formula
    • Portfolio Return Formula
    • Central Tendency Formula
    • Accumulated Depreciation Formula
    • Intrinsic Value Formula
    • Decile Formula
    • Vector Cross Product Formula
    • Effective Annual Rate Formula
    • CAGR Formula
    • Mode Formula
    • Arithmetic Mean Formula
    • Real GDP Formula
    • Gini Coefficient Formula
    • Expected Value Formula
    • Price Elasticity of Supply Formula
    • Net Operating Income Formula
    • Profit Percentage Formula
    • GDP Per Capita Formula
    • Altman Z Score
    • Quartile Deviation Formula
    • Return on Capital Employed Formula
    • Consumer Price Index Formula
    • Economic Profit Formula
    • Market Share Formula
    • Real Interest Rate Formula
    • Income Elasticity of Demand Formula
    • Income From Operations Formula
    • Indexation Formula
    • Sales Formula
    • Money Multiplier Formula
    • GDP Deflator Formula
    • Residual Income Formula
    • Effective Interest Rate Formula
    • Coupon Bond Formula
    • Current Account Formula
    • Total Cost Formula
    • Total Expense Ratio Formula
    • Net Sales Formula
    • Percentage Decrease Formula
    • Uncertainty Formula
    • Nominal GDP Formula
    • Effect Size Formula
    • Delta Formula
    • Cost of Sales Formula
    • Fixed Cost Formula
    • Unemployment Rate Formula
    • Present Value of Annuity Formula
    • Compounding Formula
    • Geometric Distribution Formula
    • National Income Formula
    • DCF Excel summary
    • Accounts Receivables Turnover Formula
    • Integer Formula
    • Ending Inventory Formula
    • Owner's Equity Formula
    • Capacity Utilization Rate Formula
    • Interest Formula
    • Nominal Interest Rate Formula
    • Price to Earning Ratio Formula
    • Risk Premium Formula
    • Interest Coverage Ratio Formula
    • Gross Profit Margin Formula
    • Diluted EPS Formula
    • Return On Average Equity Formula
    • Return on Average Assets Formula
    • Working Capital Formula
    • Revenue Per Employee Ratio Formula
    • Capital Employed Formula
    • Rule of 72 Formula
    • Inventory Turnover Ratio Formula
    • Preferred Dividend Formula
    • Retention Ratio Formula
    • Present Value Factor Formula
    • Equity Multiplier Formula
    • Continuous Compounding Formula
    • Return on Assets (ROA) Formula
    • Portfolio Variance Formula
    • Weighted Average Formula
    • Net Working Capital Formula
    • Tax Equivalent Yield Formula
    • Poisson Distribution Formula
    • Current Ratio Formula
    • Debt Ratio Formula
    • Quick Ratio Formula
    • Payback Period Formula
    • Marginal Cost Formula
    • Debt to Income Ratio Formula
    • Gross Income vs Net Income
    • Book Value Per Share Formula
    • Asset Turnover Ratio Formula
    • Perpetuity Formula
    • Bid-Ask Spread Formula
    • Price to Book Value Formula
    • Capital Gains Yield Formula
    • Net Profit Margin Formula
    • DuPont Formula
    • Bond Pricing Formula
    • Binomial Distribution Formula
    • Sustainable Growth Rate Formula
    • Average Collection Period Formula
    • Net Income Formula
    • CAPM Formula
    • Cost of Goods Sold Formula
    • Economic Order Quantity (EOQ) Formula
    • Amortization Formula
    • Enterprise Value Formula
    • Beta Formula
    • Cost of Equity Formula
    • Rate of Return Formula
    • Revenue Formula
    • Markup Price Formula
    • Cash Flow from Operations Formula
    • Simple Interest Rate Formula
    • Consumer Surplus Formula
    • Asset to Sales Ratio Formula
    • Debt Service Coverage Ratio Formula
    • Capitalization Rate Formula
    • Cost of Debt Formula
    • Straight Line Depreciation Formula
    • Variable Costing Formula
    • Return on Invested Capital Formula
    • Profitability Index Formula
    • Expected Return Formula
    • Cost of Capital Formula
    • Price Index Formula
    • Average Total Cost Formula
    • Discount Factor Formula
    • Price Elasticity Formula
    • Profitability Ratios Formula
    • Financial Leverage Formula
    • Contribution Margin Formula
    • Time Value of Money Formula
    • Balance Sheet Formula
    • Opportunity Cost Formula
    • Current Assets Formula
    • Operating Cycle Formula
    • Operating Margin Formula
    • Bond Equivalent Yield Formula
    • Marginal Revenue Formula
    • Sales Revenue Formula
    • Net Debt Formula
    • Times Interest Earned Formula
    • Gordon Growth Model Formula
    • Required Rate of Return Formula
    • Break Even Analysis Formula
    • Inventory Formula
    • Marginal Propensity to Consume Formula
    • Debt to Asset Ratio Formula
    • Solvency Ratio Formula
    • Interest Expense Formula
    • Leverage Ratio Formula
    • Dividend Payout Ratio Formula
    • Operating Profit Margin Formula
    • PEG Ratio Formula
    • Net Interest Margin Formula
    • Return on Equity (ROE) Formula
    • Overhead Ratio Formula
    • Future Value Formula
    • Days in Inventory Formula
    • Market Capitalization Formula
    • Sharpe Ratio Formula
    • Cash Ratio Formula
    • Retained Earnings Formula
    • Average Rate of Return Formula
    • Current Liabilities Formula
    • Equity Value Formula
    • Relative Risk Reduction Formula
    • Capital Adequacy Ratio Formula
    • Debtor Days Formula
    • DPMO Formula
    • Average Formula
    • Exponential Growth Formula
    • Net Realizable Value Formula
    • Range Formula
    • Shareholders' Equity Formula
    • Sinking Fund Formula
    • Doubling Time Formula
    • Salvage Value Formula
    • Coupon Rate Formula
    • Simple Interest Formula
    • Correlation Formula
    • R - Squared Formula
    • MTBF Formula
    • Change in Net Working Capital Formula
    • Midrange Formula
    • Normal Distribution Formula
    • Mean Formula
    • Population Mean Formula
    • Median Formula
    • Central Limit Theorem Formula
    • Free Cash Flow Formula
    • Stockholder's Equity Formula
    • Acid-Test Ratio Formula
    • Percentile Rank Formula
    • Purchasing Power Parity Formula
    • Harmonic Mean Formula
    • Relative Standard Deviation Formula
    • T Distribution Formula
    • Normalization Formula
    • Operating Income Formula
    • Markup Percentage Formula
    • Relative Change Formula
    • Maturity Value Formula
    • Salary Formula
    • High Low Method
    • Income Statement Formula
    • Market to Book Ratio Formula
    • Dividends Per Share Formula
    • Daily Compound Interest Formula
    • Working Capital Turnover Ratio Formula
    • Weighted Mean Formula
    • Compounded Annual Growth Rate Formula
    • Regression Formula
    • Margin of Error Formula
    • Hypergeometric Distribution Formula
    • Standard Normal Distribution Formula
    • NOPAT Formula
    • Effective Tax Rate Formula
    • Degree of Operating Leverage Formula
    • Outliers Formula
    • Information Ratio Formula
    • Percent Error Formula
    • Hypothesis Testing Formula
    • Activity Based Costing Formula
    • Coverage Ratio Formula
    • Market Risk Premium Formula
    • Degree of Financial Leverage Formula
    • Absorption Costing Formula
    • Future Value of Annuity Due Formula
    • Internal Growth Rate Formula
    • F-Test Formula
    • Covariance Formula
    • Population Variance Formula
    • Coefficient of Determination Formula
    • Adjusted R Squared Formula
    • Compound Interest Formula
    • Gross Profit Formula
    • Accounting Equation Formula
    • Sample Size Formula
    • Sample Standard Deviation Formula
    • Quartile Formula
    • Variance Analysis Formula
    • Correlation Coefficient Formula
    • Z Score Formula
    • Variance Formula
    • Present Value Formula
    • Coefficient of Variation Formula
    • Net Asset Value Formula
    • Profit Margin Formula
    • Holding Period Return Formula
    • Capital Asset Pricing Model Formula
    • Present Value of Annuity Due Formula
    • Depreciation Expenses Formula
    • Annuity Formula
    • Taxable Income Formula
    • Profit Formula
    • Monthly Compound Interest Formula
    • Equity Formula
    • Return on Total Assets Formula
    • Alpha Formula
    • Debt to Equity Ratio Formula
    • EBITDA Formula
    • Accrued Interest Formula
    • Dividend Formula
    • Common Stock Formula
    • Mortgage Formula
    • Growth Rate Formula
    • Absolute Value Formula
  • Accounting fundamentals (288+)
  • Asset Management Tutorial (36+)
  • Banking (34+)
  • Corporate Finance Basics (24+)
  • Credit Research Fundamentals (6+)
  • Economics (36+)
  • Financial Modeling in Excel (10+)
  • Investment Banking Basics (30+)
  • Investment Banking Careers (30+)
  • Trading for dummies (39+)
  • valuation basics (23+)
Finance Blog Courses
  • Finance for Non Finance Managers Training Course
  • Investment Banking Online Course
  • Financial Modeling Certification
Footer
About Us
  • Who is EDUCBA?
  • Sign Up
  •  
Free Courses
  • Free Finance Course Online
  • Free Online Course Accounting
  • Free Tutorials on QuickBooks
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course
  • Venture Capital Course
  • CFA Level 1 Course
  • CFA Level 2 Course
  • IFRS Course Training
  • Project Finance Course
  • Hedge Funds Course
Resources
  • Resources (A To Z)
  • Investment Banking Jobs Offer
  • Finance Formula
  • Valuation
  • Accounting Fundamentals
  • Corporate Finance Basics
  • Financial Modeling in excel
  • Credit Research Fundamentals
  • Asset Management Tutorial
  • Trading for dummies
Apps
  • iPhone & iPad
  • Android
Support
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions

© 2019 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA

Download Daily Compound Interest Template

By continuing above step, you agree to our Terms of Use and Privacy Policy.
EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA Login

Forgot Password?

Let’s Get Started
Please provide your Email ID
Email ID is incorrect

Cyber Week Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More

Cyber Week Offer - Cyber Week Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More