After writing about effective interest rate, I thought I missed explaining the concept of time value of money, which basically forms the foundation of finance as we know it today.
You can read about it here and the earlier articles on financial terms here.
The title of this blog caught my attention. I mean since my site talks about money and personal finance, I thought EverydayEconomist would have some related articles that would jog my mind for ideas. Since the blog is rather new, I thought it might take some time to settle down on a niche subject later. At the moment, there are various categories and some interesting articles on economics. Bet you can learn a fair bit about theories you have not heard before.
Although the author mention that the blog is an attempt to mix technology and his studies in economics, I feel it shares more about the authors “everyday experience” and “economics” than technology. Only time will settle this blog to maturity and it’s quite interesting to learn about economic theories.
Last week, we discussed about compounding interest and also how to use the rule of 72 to estimate the rate at which your money doubles. This forms the foundation on our next topic, which is, the difference between nominal interest rate and effective interest rate.
Most financial institution quote nominal interest rate. This is usually lower than the effective interest rate due to how frequent the interest is compounded. Many people are paying a lot more interest than they think they are, because of this difference.
Here is a thorough explanation of effective interest rate and also an example to show how big a difference it can be.
