Effective Interest Rate Calculator
Enter a nominal rate and its compounding frequency to find the effective interest rate once compounding is included.
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Enter a nominal rate and compounding frequency to see the effective rate.
Worked example
With these example inputs:
- Nominal interest rate8%
- Compounding frequency4
Effective interest rate: 8.24%
- Nominal rate8.0%
- Effect of compounding0.24%
Frequently asked questions
How is the effective interest rate found?
Take one plus the nominal rate divided by the periods per year, raise it to that number of periods and subtract one. A 6% nominal rate compounded monthly is about 6.17% effective.
How does it differ from the nominal rate?
The nominal rate ignores compounding within the year, while the effective rate includes it. They match only when interest compounds once a year.