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asked 9 months ago
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I am not an expert but my understanding is that annual rate is used as a basis of calculating daily or monthly interest. Depending on whether interest is compounded daily, monthly or yearly the annual yield is a little more because of the interest compounding.
For instance, $ 100 at 5% Compounded yearly would be a total of $ 5 interest earned for the year.
For daily compounding, interest would be credited on the second day and every subsequent day at rate of 5% converted into a daily rate.
It is not accurate to say that APR is less than interest rate. It would be more accurate to say APR is less than Annual Yield (if compounding is daily or monthly).
For instance, $ 100 at 5% Compounded yearly would be a total of $ 5 interest earned for the year.
For daily compounding, interest would be credited on the second day and every subsequent day at rate of 5% converted into a daily rate.
It is not accurate to say that APR is less than interest rate. It would be more accurate to say APR is less than Annual Yield (if compounding is daily or monthly).
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