What is the "Act/365", or "Actual/365" Day Count Convention?

"Act/365 (Actual/365) - Mainly used by banks in US for their savings and term deposit (CD Certificate Deposit) accounts. This convention fixes FiY() to 365, so it is easier to calculate. It is very accurate for regular years, and less accurate for leap years.

Act/365 is also referred as Act/365F, Act/365 Fixed.

Act/365 can be formally defined below using notations presented in previous tutorials:

Day_Count_Factor(T1,T2) = DiR(T1,T2) / DiY(T1,T2)
DiR(T1,T2) = Calendar_Days(T1,T2)
DiY(T1,T2) = 365

where: 
  T1 = (Y1,M1,D1): Starting date (inclusive)  
  T2 = (Y2,M2,D2): Ending date (exclusive) of the Accrual Range  
  T3 = (Y3,M3,D3): Ending date (exclusive) of the Accrual Period 
  T4 = (Y4,M4,D4): Ending date (exclusive) of the Accrual Year 

Example:
   2026-01-01   2025-01-16   2026-02-01            2027-01-01
---T1-----------T2-----------T3-----------...------T4--- 

  [T1-----------T2): Accrual Range
  [T1------------------------T3): Accrual Period
  [T1-------------------------------------...------T4): Accrual Year

Since the denominator of the Day Count Factor is a fixed value, the Accrued Interest calculation can be expressed in term of the Daily Interest Rate:

Daily_Interest_Rate = Interest_Rate / 365 
Accrued_Interest 
  = Principal × Interest_Rate × Day_Count_Factor
  = Principal × Interest_Rate × Calendar_Days(T1,T2) / 365 
  = Principal × Daily_Interest_Rate × Calendar_Days(T1,T2)

Here is an example of a term deposit:

Principal:             $1,000.00 
Interest Method:       Simple Interest 
Interest Frequency:    12 (Monthly) 
Interest Rate:         5.00%
Day Count Convention:  Act/365
Term:                  5 Years 
  Start date:          2023-01-01 
  Maturity date:       2028-01-01

Here is how you can calculate the Accrued Interest in the date range of [T1,T2) = [2023-01-01, 2023-01-16):

T1 = 2023-01-01: Starting date (inclusive)
T2 = 2023-01-16: Ending date (exclusive) of the Accrual Range 
T3 = 2023-02-01: Ending date (exclusive) of the Accrual Period  
T4 = 2024-01-01: Ending date (exclusive) of the Accrual Year

DiR(T1,T2) = DiR(T1,T2) 
  = Calendar_DaysT1,T2) 
  = 15

DiY(T1,T2) = 365 

Day_Count_Factor(T1,T2) = DiR(T1,T2) / DiY(T1,T2)
  = 15 / 365 
  = 0.041095890410959

Accrued_Interest = Principal × Interest_Rate × Day_Count_Factor
  = $1,000.00 × 5.0% × 0.041095890410959
  = $2.0547945205479
  = $2.05 

Act/365 convention has several main properties. See next tutorials for more details.

• Days in Year, DiY(T1,T2), is a fixed value of 365.
• An extra 1-day interest is generated in a leap year.
• Daily Interest Rate is a fixed value independent of Accrual Periods.
• Day Count Factor is additive for consecutive and non-overlapping Accrual Ranges.

⇒ "Act/365" - Cross-Period Accrual

⇐ Day Count Convention - "Act/365"

⇑ Day Count Convention - "Act/365"

⇑⇑ Day Count Conventions