Effective interest rate Complete Guides
Effective annual interest rate versus nominal interest rate. It’s one of the things to look at when choosing where to open a savings account.
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-by Kristin Watson
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- Last updated
Course Description
Effective annual interest rate versus nominal interest rate. It’s one of the things to look at when choosing where to open a savings account. Bank A offers you a 6% nominal annual interest rate, and so does Bank B. At Bank A, the interest is credited to your account annually, at Bank B monthly. Does that make any difference? 12 times 0.5% interest equals 6% per year, right? The difference is the compounding effect of monthly interest versus yearly interest.
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