Effective Interest Rate Calculator
Convert a nominal annual interest rate into its true effective annual rate.
Calculate
Enter your values below.
Result
Effective annual rate
0
Formula used
Effective rate = (1 + nominal/n)ⁿ − 1
Example: 12% nominal compounded monthly → effective rate ≈ 12.68%.
How to use this calculator
- Enter Nominal annual rate (%), Compounding periods per year.
- Press Calculate to see your result instantly.
FAQ
Frequently asked questions
Why is the effective rate higher than the nominal rate?
Because compounding within the year adds interest-on-interest, which the nominal rate alone doesn't reflect.
What if compounding is annual (n=1)?
The effective rate equals the nominal rate exactly.
Is this the same as APY?
Yes — APY is another name for the effective annual rate.
Why does this matter for comparing loans or savings accounts?
It lets you compare products with different compounding frequencies on a like-for-like basis.