The effective rate is the interest rate you actually pay or receive, as opposed to the stated rate. For example, an 8% stated rate paid annually on a $1,000 investment is $80 per year. However, if interest is paid quarterly, you will receive $82.40 a year. So, the effective annual rate is 8.24% per year. Read the fine print, where effective rates are generally disclosed. (more…)

Future value is the amount your original deposit will be worth in the future based on earning a specific interest rate over a specific period of time. Figure out how much your savings will earn and grow by multiplying the principal by the annual interest rate and then adding that interest amount to the principal. (more…)