Convert Annual Interest Rate to Daily Rate

The formula

Example: convert 5% annual interest to a daily rate

For a nominal 5% rate on a 365-day basis:

For a true 5% effective annual return, the equivalent compounded daily rate is:

Which formula should a loan use?

Standard simple-interest and many amortized loans quote a nominal annual rate. Their periodic rate is generally the annual nominal rate divided by the number of periods in the rate convention. Check the note or lender method.

Which formula should an investment use?

If 5% means the investment actually grows 5% over one year after compounding, use the equivalent-rate formula. Repeated daily compounding at that rate produces exactly the stated effective annual return.

Why the distinction matters

Dividing a 5% effective annual return by 365 and then compounding that daily rate would produce slightly more than 5% over a full year. The difference grows as rates increase.