Enter the annual nominal rate and the number of compounding periods per year into the calculator to determine the effective interest rate.

## Effective Interest Rate Formula

The following formula is used to calculate an effective interest rate.

ER = (1 + i/n) ^ n – 1

- Where ER is the effective interest rate
- i is the nominal interest rate
- n is the number of compounding periods per year

## Effective Interest Rate Definition

An effective interest rate is defined as the nominal rate of interest when compounded over a number of periods per year.

## Effective Interest Rate Example

How to calculate an effective interest rate.

**First, determine the nominal rate.**For this example we will say we are looking at a credit card with a monthly nominal rate of .15 (15%).

**Next, determine the compounding periods per year.**Since the nominal rate is per month, the compounding periods is 12 months per year.

**Finally, calculate the effective interest rate.**Using the formula above we find the effective rate to be (1+.15/12)^12 – 1 = .1607

## FAQ

**What is an effective interest rate?**

An effective interest is the true annual interest rate of a loan or credit based on a nominal rate and number of compounding periods per year. Interest compounds each period, so the more compounding periods the higher the effective rate will be.

## Related Terms

effective interest rate calculator |

effective interest formula |

how to calculate effective interest rate |

effective interest rate formula |

effective annual rate formula |

effective annual yield |

effective annual interest rate |

effective annual rate calculator |

effective rate formula |

effective annual yield formula |

how to calculate effective interest rate on a loan |

effective annual interest rate calculator |

how to calculate ear |

effective annual yield calculator |

how to find effective interest rate |

effective interest rate formula excel |

effective annual interest rate formula |

calculate ear |

nominal and effective interest rates examples |

effective interest rate excel |

eir calculator |

apr to ear formula |

effective yield formula |

effective interest rate example |

how to compute effective interest rate |

ear to apr calculator |

effective interest method formula |

how to calculate effective interest rate using financial calculator |

apr to ear calculator |

effective interest calculator |

effective annual rate excel |

effective interest method of amortization excel |

ear finance formula |

effective interest method calculator |

effective interest rate calculator excel |

ear to apr formula |

how to calculate eir |

monthly effective interest rate |

effective annual return formula |

how to find effective annual yield |

effective annual rate example |

find effective interest rate |

nominal interest rate excel |

effective rate of return formula |

how to calculate effective annual interest rate |

how to get effective interest rate |

effective annual interest |

effective interest rate method example |

how to calculate nominal interest rate in excel |

effective rate of return calculator |

how to calculate nominal interest rate compounded quarterly |

effective annual rate equation |

nominal annual interest rate formula |

effective monthly rate formula |

effective interest method of amortization calculator |

how to find effective rate of interest |

conversion of flat interest rate to effective interest rate formula |

effective annual return calculator |

effective interest amortization table |

effective interest rate formula in excel |

actual interest rate formula |

nominal to effective interest rate formula |

converting interest rates to different interest periods |

weighted average effective interest rate |

effective apr calculator |

effective interest rate equation |

effective cost of deposit formula |

annual equivalent rate calculator |

nominal annual interest rate calculator |

convert quarterly interest rate to annual |

effective annual interest rate excel |

effective borrowing cost formula |

nominal to effective interest rate calculator |

how to find effective annual interest rate |

actual interest rate calculator |

eir effective interest rate |

effective annual interest rate example |

how to compute for effective interest rate |

equivalent interest rate formula |

effective interest rate method formula |

effective to nominal interest rate formula |

find the effective rate corresponding to the nominal rate |

effective interest rate after tax |

how to determine effective interest rate |

compute effective interest rate |

calculate eir |

mortgage effective interest rate |

how to calculate effective interest |

effective monthly interest rate calculator |

how to find nominal interest rate in excel |

quarterly rate to annual rate |

effective annual interest calculator |

how to calculate effective rate of return |

nominal annual rate formula |

car loan effective interest rate |

effective interest rate calculator continuous compounding |

how to find the effective annual yield |

eir computation |

formula to calculate effective interest rate |

effective to flat rate calculator |

flat rate to effective rate formula |

how to compute effective interest rate in excel |

effective yield formula excel |

effective annual rate of return formula |

annual equivalent rate formula |

effective interest rate loan |

bond effective interest rate calculator |

effective rate compounded continuously |

ear finance calculator |

formula of effective annual rate |

effective yield calculation |

effective annual rate of return calculator |

effective annual yield equation |

how to calculate annual effective interest rate |

effective borrowing cost calculator |

how to find nominal rate of interest |

convert effective rate to nominal rate |

how to convert flat rate to effective rate |

convert nominal to effective interest rate |

effective annual rate formula excel |