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It's standard to talk in annualized interest rates to make simple comparisons between accounts. A daily interest rate of 0.008 % will compound up to just over
by rexaliquid 8y ago
It's standard to talk in annualized interest rates to make simple comparisons between accounts. A daily interest rate of 0.008 % will compound up to just over 3 % of effective annual rate.
- ikeboy 8y agoIf the daily interest rate is 0.008 then the annualized rate is 2.92%, not 3%. The standard is to multiply by the number of periods, not to take compounding into the calculation.
- talltimtom 8y agoWhy would the standard be to calculate a number that has no use and isn’t rooted in reality? If the rate is 3% annually and paid out daily, the the daily rate is the number that compounded yields 3% annually....
- ikeboy 8y agoBecause it makes it easy to calculate how much is distributed. Just take the annual rate, divide by number of periods, and multiply by the amount of principle.
- rexaliquid 8y agoThat's true of the nominal rate. A nominal 3% divides to an effective daily rate of 0.0082 %. But the effective rate is (1 + Nominal Rate / n)n - 1 or just over 3.2%.