Compounding monthy will give you a greater Annual Percentage Yield.
It's all mathematical.
Whenever you have a deposit account in which you earn interest.
The interest earned can be calculated by the following
I = D [(1 + A/p) np - 1]
A = the APR
p = the number of times compounded annually
n= the number of years.
D = the amount of your deposit.
If D = $1,000
If p = 12
If n = 1
If A = 6.0%
For 1 year you would have
I = $1,000 [ (1 + 0.12/12)12 -1] = $126.83
If compounded annually you will have
I = $1,000 [ (1 + 0.12) - 1] = $120.00
The effective annual interest rate is:
E = 100% x[ ( 1 + .12/12)12 - 1] = 12.683%
Therefore the more times the compoundment yieds the greatest APY.
It's all mathematical.
Whenever you have a deposit account in which you earn interest.
The interest earned can be calculated by the following
I = D [(1 + A/p) np - 1]
A = the APR
p = the number of times compounded annually
n= the number of years.
D = the amount of your deposit.
If D = $1,000
If p = 12
If n = 1
If A = 6.0%
For 1 year you would have
I = $1,000 [ (1 + 0.12/12)12 -1] = $126.83
If compounded annually you will have
I = $1,000 [ (1 + 0.12) - 1] = $120.00
The effective annual interest rate is:
E = 100% x[ ( 1 + .12/12)12 - 1] = 12.683%
Therefore the more times the compoundment yieds the greatest APY.