Effective annual rate calculator

One year, including interest on interest

EAR = (1 + r/m)^m − 1. Here r is the nominal annual rate as a decimal and m is the positive whole number of compounding periods in a year. Multiply the result by 100 to display a percentage.

The conversion assumes the rate stays unchanged and interest is added back at every compounding period. Microsoft: effective annual interest rate documents this nominal-to-effective-rate calculation.

A nominal 12% compounded monthly

Monthly rate = 12% ÷ 12 = 1%. Over twelve compounding periods, (1.01¹² − 1) × 100 = 12.682503…%, or about 12.68% effective annually.

With 1,000.00 left untouched, that rate convention produces 1,126.83 after one year before tax and fees. Annual compounding at the same nominal 12% instead gives exactly 1,120.00.

Compare the basis, not only the label

Compare two nominal rates only after checking their compounding frequencies. An advertised effective yield may already include compounding; converting it again would count the effect twice. The calculation does not perform currency conversion or correct for inflation.

A generic EAR is not automatically the legally defined APR or savings-yield disclosure in a jurisdiction. Fees, dates and mandated conventions can matter.

An effective annual conversion does not replace a regulated borrowing disclosure. The interest-rate versus APR guide explains the difference, while the compounding guide follows what happens to interest credited during the year.

When a conversion is insufficient

Tiered rates, bonuses, withdrawals, changing balances and introductory offers need their own cash-flow model. If interest is paid out rather than reinvested, the account does not follow the assumed compound path. Check the actual product terms before using the conversion in a decision.