effective annual interest rate

Definition

The actual annual interest rate that accrues, after taking into consideration the effects of compounding (when compounding occurs more than once per year).

Use this term in a sentence

You should try and shop around to get the best effective annual interest rate you can to save money long term.

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The effective annual interest rate on the bond was four percent. This rate was higher than what the average bond was returning.

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Many credit card owners forget to figure out their effective annual interest rates when calculating their budget for credit card bills.

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