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How to use
Effective annual rate folds intra-year compounding into one mathematical annual rate. The calculator converts nominal to effective rate or reverses the conversion for periodic or continuous compounding.
- Choose the conversion direction.
- Choose periodic or continuous compounding.
- Enter the rate and period count when applicable, then compare the annual rates.
How it is calculated
Example
A 12% nominal rate compounded monthly gives EAR ≈ (1+0.12/12)^12−1 = 12.6825%.
Important notes
This is a compounding-math comparison only. Fees, taxes, day-count conventions and product terms can change real borrowing cost or yield; this is not financial advice.
Worked examples and interpreting results
A nominal annual rate of 12% compounded monthly means 1% per month and effective annual rate about 12.6825%. The difference comes from compounding within the year.
| Case | Calculation | Result |
|---|---|---|
| Monthly rate | 12 ÷ 12 | 1 % |
| Effective annual rate | (1.01¹² − 1) × 100 | 12.682503 % |
How to check the result
Choose nominal input, periodic compounding and 12 periods. This rate excludes product fees; comparisons need consistent rate definitions and cost assumptions.
Frequently asked questions
Nominal versus effective rate?
The nominal rate is stated before intra-year compounding is folded in; the effective rate includes that compounding effect.
What happens with annual compounding?
At n=1 the nominal and effective annual rates are equal.
Is continuous compounding supported?
Yes, using EAR=e^r−1 and the inverse r=ln(1+EAR).