Lenders and banks quote nominal rates, but the effective rate tells you what you actually pay or earn in a year. Credit cards that compound daily at 24% nominal cost about 27.1% effectively.
How to use the Effective Interest Rate Calculator
- Calculate from
- Annual interest rate (nominal)
- Compounding frequency
- Initial balance
- Final balance
- Term
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the nominal rate and compounding frequency, or switch to balances.
Inputs explained
| Field | What to enter |
|---|---|
| Calculate from | Choose one: Nominal rate, Initial and final balance |
| Annual interest rate (nominal) | In % |
| Compounding frequency | Choose one: Annually, Semi-annually, Quarterly, Monthly … |
| Initial balance | Amount in your currency |
| Final balance | Amount in your currency |
| Term | Units: years, months |
Example values
How the main result changes when Annual interest rate changes and everything else stays at the example values above:
| Annual interest rate (nominal) (%) | Effective interest rate (%) |
|---|---|
| 12 | 12.6825 |
| 18 | 19.5618 |
| 24 | 26.8242 |
| 30 | 34.4889 |
| 36 | 42.5761 |
| 48 | 60.1032 |
Formula
EIR = (1 + r ÷ n)^n − 1
Daily 360: n = 360 (bank convention); continuous: e^r − 1
From balances: EIR = (final ÷ initial)¹ ÷ years) − 1
Worked example
Inputs: Calculate from: Nominal rate; Annual interest rate (nominal): 24 %; Compounding frequency: Monthly.
Results: Effective interest rate = 26.8242 %; Periodic rate = 2 %.
Frequently asked questions
What is the effective interest rate?
The true annual rate after compounding.
How do credit cards compound?
Usually daily, so the effective rate is above the stated APR.
Is the effective rate the same as APR?
No. APR is nominal and may include fees; the effective rate includes compounding.
Guides on this topic
- APR vs APY: What’s the Difference and How to Convert Them: APR leaves out compounding, APY includes it. See the conversion formulas, why banks quote APY on savings and APR on loans, and how fees change a loan's APR.