Effective Interest Rate Calculator
Convert nominal annual rates to Effective Annual Rates (EAR) to compare compound interest yields.
Nominal Rate Settings
Effective Yield Result
Equivalent EAR Compounding Comparisons
See how different compounding frequencies affect the effective yield for a nominal rate of 12.00%:
| Compounding Frequency | Formula Period ($m$) | Calculated Effective EAR | Annual Yield Increase |
|---|---|---|---|
| Annually | 1 | 12.000% | +0.000% |
| Semi-Annually | 2 | 12.360% | +0.360% |
| Quarterly | 4 | 12.551% | +0.551% |
| Monthly | 12 | 12.683% | +0.683% |
| Daily | 365 | 12.747% | +0.747% |
What is the Effective Interest Rate Calculator?
The Effective Interest Rate Calculator reveals the true cost of a loan or the true yield of an investment. It takes the "Nominal" rate advertised by the bank and adjusts it based on how frequently the interest actually compounds.
How It Works (Algorithm)
If a bank advertises a 10% rate that compounds monthly, your true annual cost is actually much higher than 10%, because you are paying interest *on* the interest 12 times a year. The calculator uses the APY formula to reveal this hidden "Effective" rate.
$$ \text{Effective Rate} = \left(1 + \frac{r}{n}\right)^n - 1 $$
The formula that unmasks the true Annual Percentage Yield (APY).
How to Use It
Enter the stated (nominal) interest rate quoted by the bank. Then, select the compounding frequency (Daily, Monthly, Semi-Annually). The calculator will output the true Effective Annual Rate (EAR).