Effective Annual Rate Calculator

Over 2 million + professionals use CFI to learn accounting, financial analysis, modeling and more. Unlock the essentials of corporate finance with our free resources and get an exclusive sneak peek at the first module of each course. Start Free

Effective Annual Rate Calculator

The following effective annual rate calculator will help you compute the effective annual rate given the nominal interest rate and the number of compounding periods.

Below is a screenshot of the effective annual rate calculator:

Effective Annual Rate Calculator Screenshot

Download the Free Template

Enter your name and email in the form below and download the free template now!

* By submitting your email address, you consent to receive email messages (including discounts and newsletters) regarding Corporate Finance Institute and its products and services and other matters (including the products and services of Corporate Finance Institute's affiliates and other organizations). You may withdraw your consent at any time.

This request for consent is made by Corporate Finance Institute, #1392 - 1771 Robson Street, Vancouver, BC V6G 3B7, Canada. www.corporatefinanceinstitute.com. [email protected]. Please click here to view CFI`s privacy policy.

The Effective Annual Rate (EAR) is the rate of interest actually earned on an investment or paid on a loan as a result of compounding the interest over a given period of time. It is usually higher than the nominal rate and is used to compare different financial products that calculate annual interest with different compounding periods – weekly, monthly, yearly, etc.  Increasing the number of compounding periods makes the effective annual interest rate increase as time goes by.

The effective annual rate is normally higher than the nominal rate because the nominal rate quotes a yearly percentage rate regardless of compounding. Increasing the number of compounding periods increases the effective annual rate as compared to the nominal rate. To spin it in another light, an investment that is compounded annually will have an effective annual rate that is equal to its nominal rate. However, if the same investment was instead compounded quarterly, the effective annual rate would then be higher.

The formula for the EAR is:

Effective Annual Rate = (1 + (Nominal Interest Rate / Number of Compounding Periods)) ^ (Number of Compounding Periods) – 1

More Free Templates

For more resources, check out our business templates library to download numerous free Excel modeling, PowerPoint presentation, and Word document templates.

Excel Tutorial

To master the art of Excel, check out CFI’s Excel Crash Course, which teaches you how to become an Excel power user. Learn the most important formulas, functions, and shortcuts to become confident in your financial analysis.

Launch CFI’s Excel Crash Course now to take your career to the next level and move up the ladder!

0 search results for ‘