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

Question

Quizplus · Accepted Answer

When interest is compounded more frequently, the effective interest rate (APY) will be higher than the nominal interest rate. This is due to the fact that with monthly compounding, the interest earned each month is added to the principal, and subsequent interest is earned on the new higher balance. This results in the interest earning more interest, which increases the effective interest rate.

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