Annual interest rate refers to the interest rate calculated in years, that is, the proportion of interest or income actually obtained each year. This concept is generally used to calculate the interest rates of financial products such as time deposits, loans and bonds. For example, the annual interest rate of your bank deposit is 5%, and you get 5% of the deposit from the bank as interest every year.
The annualized interest rate is to convert the interest rate within a certain period into the interest rate calculated in years. This kind of interest rate can help us compare the return on investment in different periods and evaluate it with the same standard. Usually, the income of investment products is calculated according to a certain period of time, such as monthly or quarterly payment. In order to compare the benefits better, we need to convert them into annual interest rates. The calculation method of annualized interest rate can be simple interest annualized or compound interest annualized.
The calculation method of annualized interest rate may be different according to the actual situation. In the case of a simple interest rate, the following formula can be used for calculation:
Annualized interest rate = actual interest rate × annual term
In the case of compound interest, because every income will be recalculated as part of the principal, this factor needs to be considered when calculating the annualized interest rate. A common method is to use the formula of compound interest and investment, namely:
Annualized interest rate =( 1+ real interest rate) n- 1
Where n represents the investment period.
Generally speaking, annual interest rate and annualized interest rate are important concepts for calculating interest and investment income. The annual interest rate is the proportion of the actual interest earned each year, which is applicable to financial products such as time deposits, loans and bonds. The annualized interest rate is to convert the interest rate in a certain period into an annualized interest rate, which is convenient for comparing the investment income in different periods.