Day Count Convention
The method used to calculate the fraction of a year for interest accrual — most commonly Act/360 (USD, EUR) or Act/365 Fixed (GBP).
Day Count Convention
A day count convention defines how to calculate the fraction of a year for interest accrual. It specifies both how to count the days in a period (the numerator) and the assumed length of a year (the denominator).
Common Conventions in RFR Loans
| Convention | Numerator | Denominator | Used For |
|---|---|---|---|
| Actual/360 (Act/360) | Actual calendar days | 360 | SOFR (USD), €STR (EUR), EURIBOR (EUR) |
| Actual/365 Fixed (Act/365) | Actual calendar days | 365 | SONIA (GBP), AONIA (AUD) |
| Actual/Actual (ISDA) | Actual calendar days | Actual days in year | Government bonds |
| 30/360 | Assumes 30 days/month | 360 | US corporate bonds, mortgages |
Act/360 vs Act/365: The Practical Difference
Act/360 produces a slightly higher interest payment than Act/365 for the same nominal rate, because dividing by 360 instead of 365 makes each day slightly "heavier."
For a 90-day period at 4.00%:
- Act/360: 4.00% × 90/360 = 1.000% of principal
- Act/365: 4.00% × 90/365 = 0.986% of principal
This difference is why LIBOR and SOFR are quoted on an Act/360 basis — lenders receive slightly more interest per day compared to an Act/365 quote of the same rate.
How Day Count Affects SOFR Calculations
In the compounding formula, the basis appears in two places:
- Daily factor: (1 + rᵢ × dᵢ / basis)
- Annualisation: × basis / D
The basis value must be consistent throughout — SOFR and €STR always use 360, SONIA always uses 365. Mixing conventions produces incorrect effective rates.
Why It Matters
When comparing rates across currencies, always check the day count. A 4.00% SOFR loan (Act/360) and a 4.00% SONIA loan (Act/365) have different true costs for the same period.
Our RFR Loan Calculator applies the correct day count convention automatically for each rate (SOFR/€STR → Act/360, SONIA → Act/365).