Chapter 6 of 10All chapters
Chapter 6 of 10
Compounding frequency
Annual, monthly, daily.
The effect
The same stated rate compounded more often produces slightly more growth. 12 percent compounded monthly gives about 12.68 percent over a year.
- APR and AER exist so products with different frequencies can be compared honestly.
- Beyond daily, the extra gain becomes negligible.
Reading a product
Always compare the annual equivalent rate rather than the headline. A higher stated rate with less frequent compounding can be worth less.