Effective Interest Rate Calculator
Turn a nominal annual rate into the effective annual rate for any compounding frequency — the number that lets you compare offers fairly.
How to use it
- Enter the advertised nominal annual rate.
- Choose how often interest is compounded.
- The effective rate is what you really pay or earn across a full year.
Examples
| 12% compounded monthly | 12.6825% effective |
| 5% compounded daily | 5.1267% effective |
A nominal rate is the headline percentage; the effective annual rate (EAR, or APY on savings accounts) is what actually accrues over a year once compounding within that year is included: EAR = (1 + i ÷ n)^n − 1. Two loans advertised at the same nominal rate can have meaningfully different real costs if they compound at different frequencies — this is the number that makes them comparable.
Worked example
A credit card advertises 12% APR compounded monthly. EAR = (1 + 0.12 ÷ 12)¹² − 1 = 1.01¹² − 1 ≈ 0.126825, or 12.6825% — the rate actually paid over the year, noticeably higher than the 12% headline figure because each month's interest starts earning interest of its own.
How compounding frequency changes the effective rate
| Compounding | Nominal 12% becomes |
|---|---|
| Annually | 12.00% |
| Quarterly | 12.55% |
| Monthly | 12.68% |
| Daily | 12.75% |
Why the gains flatten out
Moving from annual to monthly compounding adds over half a percentage point at 12%. Moving from monthly to daily adds only about 0.07 points more — the curve approaches a ceiling (continuous compounding, e^r − 1) quickly, so beyond a certain frequency, more frequent compounding barely matters in practice.
Questions people ask
What is the difference between nominal rate and APY?
The nominal rate ignores compounding within the year. APY, or effective annual rate, includes it — which is why 12% compounded monthly is really 12.68%.
Why does daily compounding barely beat monthly?
Compounding gains flatten out quickly. The gap between monthly and continuous compounding at 12% is only about 0.07 percentage points.
Is anything sent to a server?
No. Every calculation runs in your browser, so nothing you type is uploaded and the page keeps working offline once it has loaded.
Last updated 17 August 2026