Stated Annual Interest Rate
- Stated Annual Interest Rate
- The return on an investment that is expressed as a per-year percentage, and that does not account for compounding that occurs throughout the year. The effective annual interest rate, on the other hand, does account for intra-year compounding that can occur on a daily, monthly or quarterly basis. Typically, the effective annual interest rate will lead to higher returns than the stated annual interest rate due to the power of compounding. Investors can compare products and calculate which type of interest will offer the most favorable return.
A $10,000, one-year certificate of deposit with a stated annual interest rate of 10% will earn $1,000 at maturity. If the money was placed in an interest-earning savings account that paid 10% compounded monthly, the account will earn interest at a rate of 0.833% each month (10% divided by 12 months; 10/12 = 0.833). Over the course of the year, this account will earn $1,047.13 in interest, at an effective annual interest rate of 10.47%, which is notably higher than the returns on the 10% stated annual interest rate of the certificate of deposit used in the example.
Investment dictionary.
Academic.
2012.
Look at other dictionaries:
stated annual interest rate — The interest rate expressed as a per year percentage, by which interest payments are determined. Bloomberg Financial Dictionary See: annual percentage rate. Bloomberg Financial Dictionary … Financial and business terms
Stated annual interest rate — The interest rate expressed as a per annum percentage, by which interest payment is determined. The New York Times Financial Glossary … Financial and business terms
Effective Annual Interest Rate — An investment s annual rate of interest when compounding occurs more often than once a year. Calculated as the following: Consider a stated annual rate of 10%. Compounded yearly, this rate will turn $1000 into $1100. However, if compounding… … Investment dictionary
Annual percentage rate — Parts of total cost and effective APR for a 12 month, 5% monthly interest, $100 loan paid off in equally sized monthly payments. The term annual percentage rate (APR), also called nominal APR, and the term effective APR, also called EAR,[1]… … Wikipedia
interest rate — The percentage of an amount of money which is paid for its use for a specified time. Commonly expressed as an annual percentage rate (APR). Federal and state laws regulate interest rate amounts and disclosures on consumer loans. See annual… … Black's law dictionary
interest rate — The percentage of an amount of money which is paid for its use for a specified time. Commonly expressed as an annual percentage rate (APR). Federal and state laws regulate interest rate amounts and disclosures on consumer loans. See annual… … Black's law dictionary
Nominal interest rate — In finance and economics nominal interest rate or nominal rate of interest refers to the rate of interest before adjustment for inflation (in contrast with the real interest rate); or, for interest rates as stated without adjustment for the full… … Wikipedia
annual percentage rate — (% APR) a unit used in the U.S. for stating interest rates and rates of return on investment. By federal regulation, these rates can be stated however a financial institution wishes, but they must be stated also in % APR so that consumers can… … Dictionary of units of measurement
Rate of return — In finance, rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested.… … Wikipedia
interest — in·ter·est / in trəst; in tə rəst, ˌrest/ n [probably alteration of earlier interesse, from Anglo French, from Medieval Latin, from Latin, to be between, make a difference, concern, from inter between, among + esse to be] 1: a right, title, claim … Law dictionary
