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.
|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%|
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.
|Interest Paid Annually||6.90%|
|Interest (Compounded Monthly) and Paid on Maturity|
|Annual interest equivalent rate||7.12%|
1: a One-year Select Investment with an annual interest rate of 6.90% compounded monthly would pay 7.12% per year at maturity.