Enter the nominal interest rate and the compounding period into the calculator. The calculator will display the effective annual yield, also known as the true yield of your investment or loan.

Effective Annual Yield Formula

The following formula is used to calculate an effective annual yield of an investment.

I = ((1 + r/m) ^m) – 1

  • Where i is the effective annual yield
  • r is the nominal yield
  • m is the compounding periods per year

Effective Annual Yield Definition

An effective annual yield is a measure of the true return on an investment over a time period.

How to calculate effective annual yield?

How to calculate annual yield

  1. First, determine the nominal rate

    This will be the nominal return rate on the investment (%)

  2. Next, determine the compounding periods

    This is the total compounding period per year. If compounding monthly, this will equal 12 periods.

  3. Finally, calculate the effective annual yield

    Using the equation and information above, calculate the effective annual yield (%).

FAQ

What is effective annual yield?

Effective annual yield is a measure of the actual or true return on investment. The reason the effective yield is slightly different is that although many are given in terms of yearly return, the actual compound in shorter intervals such as months. This leads to a slight increase in the actual return over a year period.

effective annual yield
effective annual yield formula