# periodic interest rate

## Definition

The rate of interest assessed on a loan or investment over a set time period when compounding occurs more than once per year. The equation for determining the periodic rate is: pr = ar / n.

Where: pr = periodic interest rate, ar = annual interest rate, n = number of times per year interest is compounded.

For example, an annual interest rate of 6% compounded monthly would be an interest rate of .005 per month (06 / 12 = .005). This method of compounding results in more total interest being accumulated over the course of a year since interest is being charged on interest more often.

## Use this term in a sentence

“ You should try and check out what the periodic interest rate will be and know how that will effect the profits. ”

“ The periodic interest rate was really cool and it was funny because there was so much involved in it, my mind became boggled. ”

“ The company prefers investments with an annual interest rate of at least 6%, which would be a periodic interest rate of .005 if compounded monthly or .015 if compounded quarterly. ”