What is the difference between compounding interval and compounding frequency?
“Compounding interval” is defined to be “the number of days in each compounding period.” Thus, for daily compounding, the compounding interval is 1 day. The term “compounding frequency”, although not used in the regulation, is commonly used to indicate the number of times the dividend rate is compounded during a year. Thus a compounding interval of 1 day is equivalent to a compounding frequency of 365. (One can use either 365 or 366 in a leap year, however, the difference in A.P.Y. calculations is virtually negligible). The Truth-in-Savings Compliance Tool uses the term compounding frequency in its routines because the term is more commonly understood.
