Daily Compound Interest

Many loans and savings accounts are currently advertising that they offer interest compounded daily as opposed to monthly or annually. Interest which compounds daily means that everyday the bank does computes the amount of interest earned on the account. Any payment you make on your loan will have an immediate impact on the amount of interest you are paying.

If the interest is calculated monthly, the bank would quite often use the set date to calculate the interest payments. A payment on the day after the interest calculation date will not effect your interest calculation for a full month but a payment made 48 hours earlier would have effected the interest calculation one month earlier.

Remember that there is a difference between how the interest is calculated and how it is paid into your account. For example, Intelligent Finance calculates mortgage interest on a daily basis but only applies the interest to you account once per month

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