What does the compounding interval do to your return?
The interval changes the result by a fraction of a percent, and for shares it does not exist at all.
Compounding interval means how often interest is credited. Every credit starts earning itself, so the same nominal rate brings a little more the more often it is paid out.
The figure that comes out of a year is called the effective annual rate. Between annually and daily there is a gap you can see, but it is small next to what the rate itself or the period does.
| Compounding frequency | Effective a year | After 15 years |
|---|---|---|
| Annually | 7.000 % | US$27,590 |
| Semi-annually | 7.122 % | US$28,068 |
| Quarterly | 7.186 % | US$28,318 |
| Monthly | 7.229 % | US$28,489 |
| Daily | 7.250 % | US$28,574 |
How to read this in the simulator
In the calculator the interval sits under Advanced and stays on annually unless you change it. The line underneath computes along with it and says what comes out of the year.
What the figure does not say
An interval only exists where interest is credited. For shares or funds the annual return already describes the whole year, so the setting means nothing there.
Education, not advice. Disclaimer