Day Count Convention

Day Count Convention refers to the standardised conventions market participants use to confirm the formal timelines for how interest accrues in debt and debt derivatives contracts. Day-count conventions differ between markets and products. The most common are 30/360 (all months are 30 days; all years are 360 days); 30/365 (same except years are 365 days); Actual/360 (actual no. of days per month in a 360-day year), Actual/365 (same except years are 365 days), and Actual/actual (actual days per month and actual days per year). The amount of interest paid under each convention will differ slightly.