Annual interest equivalent rate
The annual comparable interest rate for compounded investments depends on the simple interest rate, the compounding period and the investment period. To compare the interest on simple interest investments and compound interest investments, we use the "Annual interest equivalent rate", defined by calculating the compounded rate over the investment period divided by the number of years.
Auto
| 2 Year Auto/Auto IF-ISA |
3 Year |
|
| Interest Paid Annually | 8.75% | 7.00% |
| Interest (Compounded Annually) and Paid on Maturity | 18.26% | 22.50% |
| Annual interest equivalent rate | 9.13% | 7.50% |
For example,
1: a Two-year pool investment with an annual interest rate of 8.75% compounded annually would pay 18.26% (18.26% ÷ 2 = 9.13%) at maturity, which translates to 9.13% Annual interest equivalent rate per year.
2: a Three-year pool investment with an annual interest rate of 7.00% compounded annually would pay 22.50% (22.50 ÷ 3 = 7.50%) at maturity, which translates to 7.50% Annual interest equivalent rate per year.
Select
| 1 Year Select IF-ISA |
|
| Interest Paid Annually | 8.70% |
| Interest (Compounded Monthly) and Paid on Maturity | |
| Annual interest equivalent rate | 9.06% |
For example,
1: a One-year Select Investment with an annual interest rate of 8.70% compounded monthly would pay 9.06% per year at maturity.