The Uncommon Truth About Interest Returns: Annualized vs. Non-annualized.
First, let us define what “annualized” and “non-annualized” returns are. Annualized returns is a term that refers to the measure of investment performance that calculates the average annual return which is expressed as if it had compounded at the same rate over a single year while non-annualized returns refer to the kind of returns earned over a specific period of time that may not be necessarily one year and reflect the total gain or loss on investment during that specified period.
Often when a bank or traditional financial institution claims to be giving 3%, 5%, or 10% interest on savings, what they really mean is that you will get the interest over 365 days (e.g. a year). These rates advertised are always awarded on a yearly basis and not earned in full the moment you deposit your funds nor if you leave the funds there for just a few days. The term used to describe this type of return, which is given as an annual rate of reward, is called “annualized”. In contrast, when we advertise to give 4 or 5% for 3 months, we actually mean giving that very percentage reward on your savings in that specific duration. Implying, we don’t divide that 4% by 365 days and then multiply that by the number of days you saved for, say 91 days/3 months. This kind of return is referred to as “Non-annualized” returns, also known as periodic or ‘actual’ returns.
Why was it important for us to point out the difference? Because we wanted to clearly demonstrate to you how by a measure we far exceed most of the commonly coveted returns advertised by your traditional financial institutions. For example, when some banks or central banks at that announce say 10% on a 91 or 182 days treasury bill (T-Bill), it doesn’t mean that if you invested ugx100,000 for strictly 91 or 182 days, your initial deposit would have increased by 10% thereafter. What you might not have known is that the advertised interest rate is an “annualized” one and not non-annualized/periodic, meaning you will instead get ~2.49% in 91 days or ~4.99% in 182 days (before taxes), which is probably not equivalent to the kind of returns you might have expected in that same time period.
One may now ask, when is it then that one may get their advertised rate? Only if you buy that 91 or 182 days T-Bill but hold it for a whole 365 days instead. But then we find it interesting that if indeed what you were primarily looking for was good interest return on your funds, why shouldn’t such one then go for the 365-day T-Bill after all it too matures in one year but always has a somewhat better return (say 12% or 13%) than the 91 or 182 days T-Bills? That’s not to say that another may further reason that they will settle for the 91 or 182 for the option of being able to out early in case they did not want to wait for an entire year. To that we say, these government debt securities are ever being traded (at discounted) rates on secondary markets. Therefore one need not focus on whether they can get out before their security matures. They could just sell out to any dealer bank at a given discount of the would-be maturity rate. Now, with the “early exit” reason out of the way, the question remains then, why would anyone go for any T-Bill that is less than the 365-day T-Bill then? We find no compelling reason either.
It’s at Pasbanc where the 91 days, or 182 days actually matter as saving instruments, unlike with your normal traditional bank or fund.
Additionally, banks are typically not a good avenue to use for achieving big financial life goals as most of their accounts are current/checking accounts where you can access and spend the funds at any time. Not good for someone learning to be a disciplined saver. Endurance is key, and banks might not always be the best choice for the long haul. Ah yes, some have fixed deposit accounts with stifling barriers like high minimum deposits, unflexible long durations from a year and above, and are typically not that rewarding either. Not ideal for most savers at all.
Saving takes endurance, and banks might not always be the best choice for the long run.
So then how about if you’re the kind who’s primarily focusing on achieving your financial goals or earning good interest returns at that? Unlike the other short-term yet absurd options of saving that we’ve described above, aren’t you better off with our saving account where say for 91 days you earn a non-annualized 4%, 9.5% for 182 days, 15% for 281 days (9 months), or a cool 22% for 365 days? Our good rates being non-annualized means that what-you-see-is-what-you-get except where indicated as APY. That’s why with all verity we often say that we have ”the best online saving account” out there, join us today for free, and accelerate achieving your financial goals. Visit our website to learn more.
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