Since I was getting a bit caught up in trying to write out some fairly complex things in comments to @medica’s answer, I am going to write it all out in a full answer here.
Basically, there is a more or less regular variation in some words between final -y and non-final -i- (sometimes -ie) in English orthography. That means that when adding various suffixes to words that end in -y, you have to know whether to change it to an -i- or not, based on a certain set of rules (plus some exceptions—this is English after all). The rules for when to choose what are as follows:
Phonetic quality of -y
The first thing to determine is how the -y is pronounced. There are three possibilities here:
- /i/, as in ‘ready’, ‘silly’, etc.
- /ai/, as in ‘sly’, ‘shy’, ‘apply’, etc.
- /j/, as in ‘day’, ‘whey’, ‘coy’, ‘buy’, ‘dye’, etc.
Regardless of what suffix you’re adding, these different pronunciations affect when the spelling does and does not change.
Phonetic makeup of suffixes
In addition, the pronunciation of the suffix that you add to the end of the word also makes a difference, or rather, the start of the suffix does. Here there are four possible variations:
- Suffix consists only of one consonant (noun-plural -(e)s, verbal third singular present -(e)s, past -(e)d, strong verb passive participle -(e)n)
- Suffix starts with a consonant (-ness, -ful, -less, -some, etc.)
- Suffix starts with the vowel /i/ (-ing, -ish, -ive, -ify, etc.)
- Suffix starts with any other vowel (-er, -est, -en, -able, etc.)
Combining -y and suffix
When you combine a final -y with a suffix, you have to look at each combination of the seven options mentioned above separately (though some of them can be lumped together, of course).
In the following, I will simply write the -y as its phonetic realisation (/i/, /ai/, or /j/), and as a shorthand, I’ll write the suffixes as simply
X (only one consonant),
I (starts with /i/), and
V (starts with any other vowel). If a rule goes for all types of -y or suffixes, I write
ANY. (If two types go together, I just write them together; so
CV means ‘suffix that starts with a consonant or a vowel that isn’t /i/’, for instance, and /i ai/ means -y pronounced either as /i/ or as /ai/.)
Exceptions to the main rules are in bold.
(‘Daily’ is in the very last section.)
I ⟹ -y-
Before a suffix that starts in /i/, -y never changes—it always remains -y-, no matter how it’s pronounced. (Even words that end in -ie change this to -y- here, such as die ⟹ dying, or lie ⟹ lying.)
- busy ⟹ busying
say ⟹ saying
shy ⟹ shying
clay ⟹ clayish
dry ⟹ dryish
/i ai/ +
X ⟹ -ie-
Before a suffix consisting of only one consonant, -y pronounced /i/ or /ai/ is written -ie-
- busy ⟹ busied, busies
dry ⟹ dries, dried
CV ⟹ -i-
Before a suffix starting in a consonant or a non-/i/ vowel, -y pronounced /i/ changes to -i-. (This does not happen in the rare instance where the -y pronounced /i/ follows a vowel sound; so gooey ⟹ gooeyness, rather than *gooiness or *gooeiness.)
- busy ⟹ business, busier, busily
study ⟹ studier, ?studiable
very ⟹ verily
CV ⟹ -y- (sometimes also -i-)
Before a suffix starting in a consonant or non-/i/ vowel, -y pronounced /ai/ generally remains in monosyllabics, though there are some individual exceptions where a variant spelling with -i- also exists. In polysyllabic words, -i- is the rule.
- shy ⟹ shyly (shily), shyer (shily), shyest (shiest), shyness (shiness) (forms with -i- all rare)
cry ⟹ cryer/crier, ?cryable
dry ⟹ dryly/drily, dryable/driable, dryness
apply ⟹ appliance, (?)applier
rely ⟹ reliant, reliance
X ⟹ -y- (sometimes -i-)
Before a suffix consisting of only one consonant, -y pronounced /j/ generally remains, except in some irregular verb forms where it changes to -i-. When -y- remains, the past tense suffix -d is written with a preceding e that isn’t pronounced; when -y- changes to -i-, this e is not written.
- day ⟹ days
play ⟹ plays, played
slay ⟹ (?)slayed, slain
lay ⟹ lays, laid, lain
toy ⟹ toys, toyed
V ⟹ -y-
Before a suffix starting in a vowel, -y pronounced /j/ always remains. No exceptions that I can think of.
- grey ⟹ greyer, greyest, ?greyable
coy ⟹ coyer, coyest
buy ⟹ buyer, buyable
C ⟹ -y- or -i-
Before a suffix starting in a consonant, the basic rule seems to be that -y remains; but there are some exceptions where it changes to -i-, one of which is the word asked about in the question: daily.
- coy ⟹ coyly, coyness
grey ⟹ (?)greyly, greyness
gay ⟹ gaily, gayness
day ⟹ daily, ?dayful
array [in the sense ‘beautiful clothes’] ⟹ raiment (from earlier (ar)rayment)