Category: Understanding IR

Annual Percentage Yield?

Annual percentage yield is the annual percentageof profit earned on an investment, which takes into account the effect of compounding interest. It’s a helpful metric to have on-hand when you decide which bank is best and what type of account to select to maximize your interest payments. If you can understand annual...
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Interest Rates and Work

An interest rate is the percentage of principal charged by the lender for the use of its money. The principal is the amount of money loaned. Interest rates affect the cost of loans. As a result, they can speed up or slow down the economy. The Federal Reserve manages interest rates...
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APR vs. APY

Compounding interest can be a powerful tool for increasing wealth. When interest compounds, you effectively earn interest on your interest, and the longer your time frame for investing and saving, the more potential your money has to grow. Both APR (annual percentage rate) and APY (annual percentage yield) are commonly used to reflect the interest...
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Simple Interest Calculations

Understanding simple interest is one of the most important and fundamental concepts for mastering your finances. It involves some simple math, but calculators can do the work for you if you prefer. With an understanding of how interest works, you become empowered to make better financial decisions that save you...
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Paying Interest

When you borrow money, you generally have to pay interest. But that might not be obvious – there’s not always a line-item transaction or separate bill for interest costs. Installment debt: With loans like standard home,1 auto,5 and student loans,6 the interest costs are baked into your monthly payment. Each month,...
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Earning Interest

You earn interest when you lend money or deposit funds into an interest-bearing bank account such as a savings account or a certificate of deposit (CD). Banks do the lending for you: They use your money to offer loans to other customers and make other investments, and they pass a portion of that revenue to...
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How Does Interest Work?

There are several different ways to calculate interest, and some methods are more beneficial for lenders. The decision to pay interest depends on what you get in return, and the decision to earn interest depends on the alternative options available for investing your money. When borrowing: To borrow money, you’ll...
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What Is Interest?

Interest is the cost of using somebody else’s money. When you borrow money, you pay interest. When you lend money, you earn interest. Here, you’ll learn more about interest, including what it is and how to calculate how much you either earn or owe — depending on whether you...
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