What does 2% interest per annum mean?

Understanding 2% Interest Per Annum

An interest rate of 2% per annum signifies that an investment earns interest at a 2% annualized rate. This means that if you invest a sum of money for one year at a 2% interest rate, you will receive interest amounting to 2% of your initial investment.

Example Calculation

Let’s consider an investment of $10,000 at a 2% annual interest rate. After one year, you will have earned interest of:

$10,000 x 2% = $200

This implies that you will receive $200 in interest each year.

Steady and Predictable Return

A 2% annual interest rate provides a steady and predictable return on your investment. Unlike other investment vehicles that may experience fluctuations, interest rates on savings accounts tend to remain stable over time. This makes them an ideal option for investors seeking a low-risk, reliable source of income.

Benefits of Compounding Interest

In addition to the regular interest earned, you can also benefit from compounding interest if you reinvest your earned interest back into the same account. Compounding interest allows your interest to earn interest, resulting in accelerated growth over the long term.

Conclusion

A 2% interest rate per annum offers a stable and predictable return on your investment capital. Whether you invest $10,000 or a larger sum, you can count on earning a steady stream of income that can contribute to your financial goals. By reinvesting your interest earnings, you can further enhance your returns through the power of compounding interest.