Result
Effective annual rate
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
Effective rate = (1 + nominal rate ÷ 100 ÷ periods per year)^(periods per year) − 1, times 100%. It's the same math as a loan's effective rate, just applied to the depositor's income instead of the cost of borrowed money.
The more often interest compounds at the same nominal rate, the higher the effective return — interest credited early in the period starts earning interest of its own. That's why a deposit with monthly compounding beats one with the same nominal rate but interest paid once a year.
Banks are required to display the nominal rate prominently in advertising — to honestly compare offers with different compounding frequencies, they need to be converted to the effective annual rate, which is exactly what this calculator does.