1. What Is Daily AER Calculation?

Daily AER (Annual Equivalent Rate) calculation converts an annual interest rate into its daily equivalent, allowing for accurate daily compounding calculations in financial applications.

2. How Does the Calculator Work?

The calculator uses the Daily AER formula:

Where:

• \( \text{Annual AER} \) — Annual Equivalent Rate in decimal form
• \( \text{Daily AER} \) — Daily equivalent rate in decimal form
• \( 365 \) — Number of days in a year

Explanation: This formula calculates the daily rate that, when compounded daily for 365 days, equals the annual rate.

3. Importance of Daily AER Calculation

Details: Daily AER calculation is essential for accurate daily interest accrual in savings accounts, loans, and investments where compounding occurs daily rather than annually.

4. Using the Calculator

Tips: Enter the annual AER as a percentage (e.g., 5 for 5%). The calculator will provide both percentage and decimal formats of the daily equivalent rate.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between AER and APR?
A: AER includes compound interest effects, while APR may not. AER shows the actual annual return when interest is compounded.

Q2: Why use 365 days instead of 360?
A: 365 days provides a more accurate calculation for daily compounding over a full calendar year, though some financial institutions use 360 days.

Q3: Can I use this for monthly compounding?
A: No, this formula is specifically for daily compounding. For monthly compounding, use (1 + Annual AER)^(1/12) - 1.

Q4: What if interest compounds more frequently than daily?
A: For more frequent compounding (e.g., continuously), different formulas like the continuous compounding formula e^(r) - 1 would be used.

Q5: Is Daily AER the same as daily interest rate?
A: Yes, Daily AER represents the daily interest rate that, when compounded daily, equals the annual AER over one year.