To convert from a daily rate to an annual rate, you could multiply by 365 if you do not want to take into consideration the effects of compounding interest. Interest compounding occurs when interest is paid to your account more than once per year. However, if you are expecting the daily returns to produce returns of their own, with such interest deposited in your savings account, you have to use a formula that takes interest compounding into account.
Divide the daily return percentage by 100 to convert it to a decimal. For example, if you earn 0.018 per cent per day, you would get a daily return rate of 0.00018.
Add 1 to the result from step 1. In our example, adding 1 to a daily rate of 0.00018 equals 1.00018.
Raise the result from step 2 to the 365th power, where 365 represents the number of times per year the interest is compounded. Continuing with our hypothetical rate, 1.00018 to the 365th would compute to 1.067899983.
Subtract 1 from the result from step 3 to get the annual return as a decimal. Subtracting 1 from our figure (1.067899983) to find the annual return rate expressed as a decimal would give us 0.067899983.
Multiply the result from step 4 by 100 to convert the annual return rate expressed as a decimal to a percentage. We, therefore, multiply 0.067899983 times 100 to get an annual return rate of about 6.79 per cent.
You can also use the formula (1+R/100)^365-1 where R is the daily interest rate expressed as a per cent.
Tips and warnings
- You can also use the formula (1+R/100)^365-1 where R is the daily interest rate expressed as a per cent.
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