Financial term
Glossary A–Z

Effective annual rate

The annual result of a specified capitalization model; it is not automatically the same as a product’s total cost or a regulatory indicator.

Why this matters

The term is useful only when the calculation basis, dates and contract conditions are stated.

Example

At 12% nominal with monthly capitalization and fixed assumptions, the model gives about 12.68%.

Common mistake

Equating an effective rate automatically with the product’s total cost.

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General financial concept; not individual advice.

Russian source references retained.

Educational material is not individual investment, legal or tax advice.