CONCEPT / EXAMPLE / CONTEXT

Effective annual rate

Expresses interest over one year including the compounding of intermediate periods. Equivalent monthly and annual effective rates describe the same growth over comparable terms.

An example to understand it

A 1% effective monthly rate is approximately 12.68% effective annually: (1.01)^12 − 1. Do not simply divide an effective annual rate by twelve to obtain its monthly equivalent. Interest equivalence does not necessarily include every loan charge.

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Concept references

Superintendencia Financiera de Colombia · Tasas de interés ↗ · Accessed: 2026-11-03

Definition and example prepared with AI assistance. Hypothetical examples, not current market data. · 2026-11-03