Weekly Interest Compounding
How it works#
Interest accrues on your Loan Balance and is capitalised at each weekly cycle close, which means it is added to your loan and itself earns interest from the following week. It is not paid to your wallet unless you elect a payout (see below) or withdraw.
What Effective Interest Rate (EIR) means#
Every rate on Kasu is an Effective Interest Rate: the annual rate you earn with weekly compounding already included, assuming your capital remains lent and your interest is left to compound for a full year. It is the number you actually earn, not a number that needs adjusting.
Two things are already inside it. Compounding: a rate of 13.12% per annum applied weekly, with each week's interest added to the loan, produces 14.00% over a year, and 14.00% is the figure shown. Fees: all platform fees are paid by the Credit Originator, so nothing is deducted from the rate you see (see How fees are charged).
Where a rate is shown as a range on a strategy card, it spans that strategy's Lending Options: the lowest rate belongs to the most senior option, which is furthest from bearing a loss, and the highest to the most junior, which bears a loss first (see Lending Strategies).
Why weekly compounding matters, and how to compare rates#
Most interest earnings products credit interest monthly, quarterly or once a year. Interest earned by your loans on Kasu is credited every week. That matters for two reasons. Your interest starts earning interest after seven days rather than after thirty or more. And, because rates on Kasu are shown as Effective Interest Rates, the effect of that weekly compounding is already in the number on screen: nothing needs adding.
The table shows the same rate of 15% per annum credited at different frequencies (compounding periods), on $10,000 lent for one year with all interest left in place. The Effective Interest Rate shows the effect of the compounding period shown below. The rate is illustrative only and is not a rate offered on Kasu.
| Interest credited (compounding period) | What you actually earn in a year | On $10,000 |
|---|---|---|
| Once a year (no compounding) | 15.00% | $1,500.00 |
| Monthly compounding | 16.08% | $1,607.55 |
| Weekly compounding (Kasu) | 16.16% | $1,615.83 |
When comparing Kasu's rates with rates elsewhere, three questions settle whether the numbers are comparable: whether compounding is already in the number, whether fees are already out, and how soon interest starts earning interest. A rate that answers those questions differently is not the same kind of number, even if it looks similar. The comparison above does not consider the risks involved, which are also an important consideration when comparing rates: a higher rate is not a better rate if the risk behind it is different.
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