Per Annum

Per Annum

Per year. For example, 5% per annum means 5% per year.

See also

Worked Example

Problem: You deposit $1,000 in a savings account that earns 4% per annum simple interest. How much interest do you earn after one year?

Step 1: Identify the rate per annum. The account pays 4% per annum, meaning 4% of the principal each year.

r = 0.04

Step 2: Multiply the principal by the annual rate to find one year's interest.

I = 1{,}000 \times 0.04 = 40

Answer: You earn $40 in interest after one year.

Why It Matters

Almost every interest rate you encounter — on loans, credit cards, and savings accounts — is quoted per annum. Understanding this tells you the time frame the rate applies to, which is essential for calculating how much you will earn or owe. Without knowing the rate is yearly, you could badly misjudge monthly or daily costs.

Common Mistakes

Mistake: Applying the per annum rate directly to a shorter period without adjusting it.

Correction: If a rate is 12% per annum and you need the monthly rate, divide by 12 to get 1% per month. Always convert the annual rate to match the time period you are calculating for.

Related Terms

Interest — Charge or earnings typically quoted per annum
Interest Rate — A percentage almost always expressed per annum
Simple Interest — Calculated using an annual rate on the principal
Compound Interest — Often compounded within the annual period
Percent — Unit used alongside per annum for rates