Effective Annual Interest Rate

While it goes by a few different names, it’s what you get when your investments earn interest, which compounds and earns even more interest over a specific time period. The reason it’s relevant is that the calculation is useful for comparing different investment and loan products which have different methods of calculating interest.

Example A: $100,000 invested for 20 years with a 7% return, compounded quarterly = $400,639.

Example B: $100,000 invested for 20 years with a 7% return, compounded monthly = $403,874.

May not seem like much in the scheme of things, but that extra three grand might come in handy. Besides, you don't know what kind of a gambling habit you're going to have in 20 years.