Effective Interest Method

A technique used when talking to older relatives at Thanksgiving. The Effective Interest Method is a set of facial muscle controls that allow you to seem like you're listening attentively to a long description of, say, the comparative prices of grapes at all the local grocery store chains...when, in reality, your mind has gone into a near-blank meditative state.

Or, if we're talking finance, the effective interest method represents an accounting tool for amortizing discounted bonds.

The method keeps the interest expense for a bond a consistent percentage of a bond's carrying value. Another method is to make this expense an equal dollar amount, but accountants tend to prefer the percentage approach. It represents a more accurate way to record the amortization, since it more closely matches the way the bond gets priced.