If your bank states that it compounds monthly,the effective interest rate will be greater than the nominal interest rate.

Question

Quizplus · Accepted Answer

When interest is compounded monthly, the interest earned each month is added to the principal, resulting in a higher balance on which interest is then calculated the following month. This leads to an increase in the effective interest rate, which takes into account the impact of compounding. Therefore, the effective interest rate will be greater than the nominal interest rate when interest is compounded monthly.

If Your Bank States That It Compounds Monthly,the Effective Interest