Effective annual rate
Convert a nominal annual rate into its equivalent annual compounded rate.
How this works
Effective annual rate = [(1 + r/m)^m − 1] × 100%, where r is the nominal annual percentage rate divided by 100 and m is the number of equal compounding periods per year. The calculation accepts whole-number frequencies from 1 to 365.
Example
The illustration may use different inputs from the reproducible default inputs listed below.
For a 12% nominal annual rate compounded monthly, calculate [(1 + 0.12/12)^12 − 1] × 100. With all reset-default inputs, effective annual rate: 12.6825%.
- Nominal annual rate (%)
- 12
- Compounding periods per year
- 12
- Effective annual rate
- 12.6825%
Scope and assumptions
Assumes a constant nominal rate with compounding at the entered frequency. Fees, taxes and varying balances or rates are excluded. This is not a fee-inclusive APR calculation, and continuous compounding is not supported.
Investor.gov — financial tools and calculators
Related calculators
Present value of a future amount