What Is Effective Annual Yield?

By Kristi Waterworth – Updated Mar 25, 2025 at 1:13 PM

Key Points

Effective annual yield calculates total bond returns, factoring in reinvested interest.
Bond equivalent yield suits zero-coupon bonds, estimating returns versus long-term bonds.
Understanding these yields helps investors assess potential gains and choose suitable bonds.

If you're a bond investor, knowing just how much money you're earning -- or could be earning -- is an important part of the equation. One such measure, called the effective annual yield, can help you decide if a bond is right for you.

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Hands sit on top of paperwork while using a calculator and taking notes. — Image source: Getty Images.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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