The answer is the effective annual rate. It is the interest rate that is actually received or paid on a deal, credit or other financial product due to the outcome of compounding over a period of time. The effective annual interest rate is a vital idea in finance because it used to link different products to compute compounded interest contrarily. For example, if an investment pays 5% compounded monthly and another pays 5.1% compounded semi-annually, the effective annual rate can be used to choose which investment pays more over the year.
