Effective/Nominal Rate Conversion
Converts a nominal annual rate with multiple interest credits per year into the effective annual rate.
Enter your own numbers and press "Calculate" – or load an example on the right; "Type in" replays it on the device.
Quarterly interest credits bring compounding within the year – that is why the effective rate lies above the nominal rate. In comparisons the effective rate always counts.
→ Story & full explanation: Quarterly coupons and the effective rate
i_eff = (1 + i_nom/m)ᵐ − 1 shows why more frequent interest credits bring more: each intra-year credit itself earns interest again. That is why the effective rate lies above the nominal rate – and only effective rates may be compared fairly.
Intra-year compounding raises the effective rate through compound interest.