Effective Interest Rate Calculator
Calculate the true annual interest rate when compounding is considered. Compare nominal vs effective rates.
EAR / APY Calculator
Enter the nominal rate and compounding frequency to find the effective annual rate
Understanding Effective Interest Rates
What is Effective Interest Rate?
The effective interest rate (EAR) is the actual annual rate of interest when the effect of compounding is taken into account. Unlike the nominal rate, which is the stated rate, the effective rate shows what you actually earn or pay over a year.
Nominal vs Effective Rate
- Nominal: The stated annual rate (e.g., 12%)
- Effective: The actual rate with compounding (e.g., 12.68%)
- Effective rate is always ≥ nominal rate
- More compounding = higher effective rate
Compounding Frequencies
- Annually: Once per year (least interest)
- Semi-Annually: Twice per year
- Quarterly: Four times per year
- Monthly: 12 times per year (most common)
- Daily: 365 times per year
- Continuous: Maximum possible interest
APR vs APY
- APR: Annual Percentage Rate (nominal + fees)
- APY: Annual Percentage Yield (effective rate)
- Banks use APY for savings (looks higher)
- Banks use APR for loans (looks lower)
- Always compare APY to APY for accuracy