Effective Annual Rate Calculator
Convert a nominal APR into the true effective annual rate.
The rate you actually pay
A quoted interest rate can understate the truth. When interest compounds monthly or daily, the effective annual rate — what you really pay or earn over a year — climbs above the nominal figure.
A 12% nominal rate compounded monthly works out to about 12.68% effective. The more often it compounds, the bigger the gap, which is why the effective rate is the fair basis for comparison.
Precise and private
The calculation runs in your browser, so nothing you enter is uploaded.
Frequently Asked Questions
What is the effective annual rate?
The real yearly rate once compounding is included. It is higher than the stated nominal rate whenever interest compounds more than once a year.
Why does compounding raise the rate?
Because you earn or pay interest on interest between compounding periods, which the simple nominal rate ignores.
What is the formula?
One plus the nominal rate divided by the number of periods, raised to the number of periods, minus one.
Browse the full set of free, private, in-browser tools.