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Annual interest equivalent rate

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

 

  3 Year
Auto/Auto IF-ISA

5 Year
Auto/Auto IF-ISA

Interest Paid Annually   6.10% 7.00%
     
Interest (Compounded Annually) and Paid on Maturity 19.48% 40.26%
Annual interest equivalent rate 6.48% 8.05%

 

For example,
1: a Three-year pool investment with an annual interest rate of 6.10% compounded annually would pay 19.44% (19.44% ÷ 3 = 6.48%) at maturity, which translates to 6.48% per year.

2: a Five-year pool investment with an annual interest rate of 7.00% compounded annually would pay 40.26% (40.26 ÷ 5 = 8.05%) at maturity, which translates to 8.05% per year.

Select

 

  1 Year
Select IF-ISA
Interest Paid Annually   6.90%
   
Interest (Compounded Monthly) and Paid on Maturity  
Annual interest equivalent rate 7.12%

 

For example,

1: a One-year Select Investment with an annual interest rate of 6.90% compounded monthly would pay 7.12% per year at maturity.