Daily Compound Interest
By Alastair Hazell.
Reviewed by Chris Hindle.
- Compound Interest
- Simple Interest
- Daily Compound
- Forex Compound
See how much daily interest/earnings you might receive on your investment over a fixed number of days, months and years. You may find this useful for day trading or trading bitcoin or other cryptocurrencies.
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What is daily compound interest?
With compound interest, the interest you have earned over a period of time is calculated and then credited back to your starting account balance. In the next compound period, interest is calculated on the total of the principal plus the previously-accumulated interest.
The more frequently that interest is calculated and credited, the quicker your account grows. The interest earned from daily compounding will therefore be higher than monthly, quarterly or yearly compounding because of the extra frequency of compounds.
With some types of investments, you might find that your interest is compounded daily, meaning that you're earning interest on both the principal amount and previously accrued interest on a daily basis. This is often the case with trading where margin is used (you are borrowing money to trade).
Examples of these types of investment include CFD trading, Forex trading, spread-betting or options for assets like stocks and shares, as well as commodities like oil and gold and cryptocurrencies like Bitcoin and Ethereum. This is a very high-risk way of investing as you can also end up paying compound interest from your account depending on the direction of the trade.
How to calculate daily compound interest
Daily compound interest is calculated using a version of the compound interest formula. To begin your calculation, take your daily interest rate and add 1 to it. Then, raise that figure to the power of the number of days you want to compound for. Finally, multiply your figure by your starting balance. Subtract the starting balance from your total if you want just the interest figure.
Note that if you wish to calculate future projections without compound interest, we have a calculator for simple interest without compounding.
Let's examine the formula in a bit more detail.
Formula for daily compound interest
The formula for calculating daily compound interest with a fixed daily interest rate is:
Where:
- A = the future value of the investment
- P = the principal investment amount
- r = the daily interest rate (decimal)
- t = the number of days the money is invested for
- ^ = ... to the power of ...
Example investment
Let's use the example of $1,000 at 0.4% daily for 365 days.
- P = 1000
- r = 0.4/100 = 0.004
- t = 365
Let's put these into our formula:
A = P(1+r)^t
A = 1000(1+0.004)^365
A = 1000 * 4.2934377972993
A = 4293.4377972993
To get the total interest, we deduct the principal amount (1000) from the future value. This gives us interest of $3293.44
Daily compounding with annual interest rate
If you have an annual interest rate and want to calculate daily compound interest, the formula you need is:
Where:
- A = the future value of the investment
- P = the principal investment amount
- r = the annual interest rate (decimal)
- t = the number of years the money is invested for
- ^ = ... to the power of ...
Including additional deposits
Making regular, additional deposits to your account has the potential to grow your balance much faster thanks to the power of compounding. Our daily compounding calculator allows you to include either daily or monthly deposits to your calculation. Note that if you include additional deposits in your calculation, they will be added at the end of each period, not the beginning.
Questions about our calculator
Here are some frequently asked questions about our daily compounding calculator.
What is the daily reinvest rate?
The daily reinvest rate is the percentage figure that you wish to keep in the investment for future days of compounding. As an example, you may wish to only reinvest 80% of the daily interest you're receiving back into the investment and withdraw the other 20% in cash.
Let's look at an example. If your initial investment is $5,000 with a 0.5% daily interest rate, your interest after the first day will be $25. If you choose an 80% daily reinvestment rate, $20 will be added to your investment balance, giving you a total of $5020 at the end of day one. The remaining $5 will be withdrawn as cash.
Excluding weekends from calculations
You may wish to only compound your money on particular days of the week. Perhaps you only trade on weekdays, or want to exclude Sundays. Our calculator gives you the option to exclude these days from your calculation, giving you extra flexibility. Here's an example:
You want to compound for one year minus weekends (net business days). This means your figure will compound for around 261 BUSINESS days, with an end date 365 days from your start date, depending on when the weekends fall.The aim of this option is to give you maximum flexibility around how your interest is compounded and calculated, whether you're Forex trading, trading with cryptocurrencies or simply buying and selling stock assets.
And finally...
I hope you found our daily compounding calculator and article useful. At The Calculator Site we love to receive feedback from our users, so please get in contact if you have any suggestions or comments. You may also wish to check out our range of other finance calculation tools.