Why two savings accounts labeled 12% can produce different calculations
A nominal annual rate compounded monthly and an effective annual rate are different inputs. Identify the rate basis before deciding how a displayed annual percentage should become a monthly rate.
Compound interest →Pair the rate with its convention
A nominal 12% annual rate compounded monthly gives a monthly rate of 1%. A 12% effective annual rate instead corresponds to a monthly rate of 1.12 raised to the power 1/12, minus one: approximately 0.9489%. Dividing an effective annual rate by twelve and then compounding it would produce a different annual result.
Compare one year on the same principal
With 1,000 and no further deposits, nominal 12% compounded monthly gives 1,000 × 1.01¹², approximately 1,126.83. An effective annual rate of 12% gives 1,120. The approximately 6.83 difference comes from the rate convention, not a calculator malfunction. Keep the contribution amount at zero when reproducing this example so that deposit timing does not introduce a second difference.
Read the product disclosure
Savings APY or AER commonly expresses an effective annual yield, but check local definitions and account conditions. A borrowing APR may include fees and should not automatically be treated as a savings yield. If the account rate changes or tax is deducted, a single fixed-rate projection will not reproduce every cash flow. Selecting a country does not establish one universally available savings rate.
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