What term describes the actual interest earned in one year?

The term that describes the actual interest earned in one year is the effective rate. This rate encapsulates the compounding of interest, providing a more accurate depiction of the true return on investment over a specific time frame, particularly when interest is compounded more frequently than annually.

The effective rate takes into account how much interest is earned on both the initial principal and the interest that has already accumulated during the year. This contrasts with the nominal rate, which does not factor in the effects of compounding, rendering it less reflective of actual interest earnings when compounding occurs.

Other terms listed do not pertain to the interest earned in a year clearly. For instance, while a lapse rate could refer to the rate at which an investment diminishes or a policy may terminate, it does not describe interest earnings. The absolute rate is not a standard term used in finance to express interest earned. Thus, the effective rate is the most appropriate term for capturing the real earnings on an investment over a year.