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I wanted to work out how much interest I would gain by leaving some money in a certain account for a few days. I knew I could derive this myself using logarithms but I was too lazy, so I searched google and clicked on the top result which turned out to be completely incorrect.
The author David Ingram recommends calculating a weekly interest rate from an annual interest rate by dividing by 12 months then 4 weeks per month which is just plain stupid, as the correct answer might be to divide by 365 (or 366!) days, then multiply by 7 days per week.
David Ingram fails to consider this distinction again and compounds his error when he suggests calculating your daily interest rate simply by dividing the incorrect weekly rate by 7. His method of calculation causes an error of 8% which is pretty significant!
This is of course assuming that we are talking about simple rather than compound interest, although the author makes no mention of this distinction. Certainly in the UK its rare to see simple interest used in financial products.
So if we're actually interested in the compound daily interest rate that is equivalent to a particular annual interest rate, this is what we need:
