If an institution is giving me an interest of 7% pa and the interest will be earned daily. How do I calculate how much do I earn per day?

I tried it calculate like this:

(7/100)/365 * PRINCIPAL = my daily interest

That was my assumption - however, when I received the daily interest, the amount was lower than I calculated with using the formula above.

What am I doing wrong?


1 Answer 1


You are not considering compound interest. From Wikipedia.:

Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.
Compound interest is contrasted with simple interest, where previously accumulated interest is not added to the principal amount of the current period, so there is no compounding.

In your case the daily interest would be $$ \left( \sqrt[365]{1+\frac{7}{100}} - 1\right) \cdot \text{principal}. $$ This way the daily interest rate comes out to approximately
Your method yielded
so there is a small but significant difference.

  • 1
    $\begingroup$ nitpicking, but the daily interest would be that formula, - principal $\endgroup$
    – njzk2
    Jun 12, 2021 at 17:50
  • $\begingroup$ @njzk2 Well nitpicked! $\endgroup$
    – Giskard
    Jun 12, 2021 at 17:58

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.