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Here are some examples to illustrate how interest compounded daily vs. monthly can affect your savings. Example #1: Compounding Monthly Assume you deposit $10,000 into a high-yield savings account ...
The nominal interest rate, also known as an annual percentage rate or APR, is the periodic interest rate multiplied by the number of periods per year. For example, a nominal annual interest rate of 12% based on monthly compounding means a 1% interest rate per month (compounded). [2]
The force of interest is less than the annual effective interest rate, but more than the annual effective discount rate. It is the reciprocal of the e -folding time. A way of modeling the force of inflation is with Stoodley's formula: δ t = p + s 1 + r s e s t {\displaystyle \delta _{t}=p+{s \over {1+rse^{st}}}} where p , r and s are estimated.
For example, a nominal interest rate of 6% compounded monthly is equivalent to an effective interest rate of 6.17%. 6% compounded monthly is credited as 6%/12 = 0.005 every month. After one year, the initial capital is increased by the factor (1 + 0.005) 12 ≈ 1.0617. Note that the yield increases with the frequency of compounding.
Find your daily periodic rate, which is your daily interest charges. To do that, divide your APR by 365 (or 360, depending on the lender). For example, if your APR is 20%, divide 0.20 by 365.
One thing to consider when comparing savings accounts is how frequently interest compounds. … Continue reading → The post Interest Compounded Daily vs. Monthly appeared first on SmartAsset Blog.