The difference between interest and penalty
There are states that apply interest or penalties, while there are also states that impose penalties in addition to interest rates. Take New Jersey as an example, you have the interest rate you have quoted on the certificate plus the penalty and then you will get the maximum interest without penalty on subsequent taxes. Whereas in other states, like Florida, you only receive the penalty or the interest rate, not both.
Now, a penalty is different from the interest rate in that it is paid for overtime and is commonly annualized for most states, such as New York and Illinois. It is calculated over a period of 6 months. In Florida and New Jersey, for example, if the maximum interest rate is 18%, that means the interest is 18% each year, not 18% directly on your investment. Differently, in Illinois, the interest rate will still be 18%, but it will be for 6 months. Yes, if the tax lien is maintained throughout the year, the investor will obtain 32% interest. But if it is redeemed in just 1 month, the investor will only receive 3% of their investment.
In Texas, where you buy redeemable tax deeds, you will receive a penalty but not interest on your money if the tax deed is redeemed. The redemption period is 6 months for non-agricultural and non-inhabited properties and the penalty is 25%. So if you buy a redeemable tax deed and it will be redeemed after 6 months, you will get 25% of your money. If it will be redeemed in just 1 month, you will still get 25% of your money.
Before bidding, always know if the state awards interest or penalties, or both.