# Effective Annual Interest Rate Calculator

The effective annual interest rate is the interest rate earned on investment or loan compounded over a period of time i.e generating earnings from previous earnings. It is also called as annual equivalent rate. Calculate the effective period rate and effective interest rate based on the annual interest rate, number of compounding periods per year using Effective Annual Interest Rate Calculator.

The effective annual interest rate is the interest rate earned on investment or loan compounded over a period of time i.e generating earnings from previous earnings. It is also called as annual equivalent rate. Calculate the effective period rate and effective interest rate based on the annual interest rate, number of compounding periods per year using Effective Annual Interest Rate Calculator.

Code to add this calci to your website

#### Formula:

Effective Period Rate = Annual Interest / Compounding Period
Effective Interest Rate = (1+ Effective Period Rate / Compounding Period)^{Compounding Period} - 1

#### Example

**What is the effective period rate and effective rate for nominal annual interest rate of 2% compounded monthly?
**

Effective period rate = i/p

=2/12

=0.1667 % per Months

Effective interest rate = (1+e/p)^{p}-1

=(1+0.1667/12)^{12}-1

=2.0184 % per Year

Calculating effective annual interest rate is important in finance because it is compared with different products that calculate compounded interest differently.