How To Calculate Accrued Interest

Interest Formula:

\[ Interest = \frac{Principal \times Rate \times Time}{365} \]

Interest:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What Is Accrued Interest?

Accrued interest refers to the interest that has been earned but not yet paid or received. It represents the amount of interest that accumulates on a principal amount over a specific period of time at a given interest rate.

2. How Does The Calculator Work?

The calculator uses the simple interest formula:

\[ Interest = \frac{Principal \times Rate \times Time}{365} \]

Where:

$ Principal $ — The initial amount of money ($)
$ Rate $ — The annual interest rate (%)
$ Time $ — The time period in days
365 — Number of days in a year

Explanation: This formula calculates the interest earned on a principal amount over a specific number of days based on an annual interest rate.

3. Importance Of Interest Calculation

Details: Accurate interest calculation is crucial for financial planning, investment analysis, loan management, and understanding the true cost of borrowing or the actual return on investments.

4. Using The Calculator

Tips: Enter the principal amount in dollars, the annual interest rate as a percentage, and the time period in days. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.

Q2: Why divide by 365 instead of 360?
A: This calculator uses the actual/365 day count convention, which is commonly used for many financial instruments and provides more precise daily interest calculations.

Q3: Can this calculator be used for loans and investments?
A: Yes, this formula works for both calculating interest earned on investments and interest owed on loans using simple interest.

Q4: What if I have a monthly or yearly time period?
A: Convert your time period to days. For months, multiply by approximately 30.44; for years, multiply by 365.

Q5: Does this calculator account for compounding?
A: No, this calculator uses simple interest calculation. For compound interest, a different formula would be required.