How to Calculate Interest on Savings Compounded Daily with Additional Deposits
A very powerful investing tool, compound interest allows an account balance to grow exponentially rather than linearly, as with simple interest. The difference between the two is that simple interest only applies to the original principal and any deposits added to the account whereas compound interest applies to the interest earned on the account balance in addition to the other values. Just as compound interest can be beneficial for investors, it can be detrimental for an account you must repay, which is why some payday loan operators use this method.
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Instructions
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1
Calculate the daily rate from the annual percentage rate (APR) for the account by dividing it by 365. Check your bank's or savings institution's rules for how to handle leap years. The simplest method is to divide by 366 for those years.
Example: 3.65% APR
0.0365/365 = 0.0001, or 0.01% daily -
2
Multiply the balance of the account by the daily rate to determine the earned interest.
Example: $10,000 @ 3.65% APR
10000*0.0001 = 1.00 -
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3
Add the interest earned to the balance of the account along with any additional deposits, if applicable.
Example: $1,000 additional deposit
10,000 + 1,000 + 1 = 11,001 -
4
Multiply the new balance by the daily rate to get the next interest payment and repeat this process for the amount of time you wish to calculate.
10,000 + 1,000 + 1 = 11,001
11,001 * 0.0001 = 1.10
11,001 + 1,000 + 1.10 = 12,,002.10
12,002.1001 * 0.0001 = 1.20
12002.1001 + 1,000 + 1.20 = 13,003.30
etc. -
5
Subtract the initial principal and the total of all the additional deposits from the final balance to determine the total amount of interest earned over the time period.
13,003.30 - 10,000 - 3,000 = 3.30
$3.30 in total interest over three days.
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Tips & Warnings
Entering this process into a spreadsheet will help, especially if the additional deposits are irregular and non-periodic.
If you are not making additional deposits, then you can calculate the values with a simple equation: S = P(1+i)^n, where P is the initial principal, i is the daily interest rate, and n is the number of days.
