Effective Interest Rate Calculator

💰 Interest Rate Calculator

Calculate effective rates from nominal rates and compounding

Nominal Interest Rate (%) The stated annual interest rate

Compounding Periods per Year

Principal Amount ($) Initial investment amount

Time Period (Years) Investment duration in years

📈 Interest Rate Analysis

Effective rate calculations and comparisons

Nominal Rate: 5.00%

Effective Rate (EIR): 5.09%

Annual Percentage Yield: 5.09%

Rate Difference: +0.09%

Future Value: $10,509

📊 Compounding Effect

Visual comparison of different compounding frequencies

💎 3D Growth Visualization

Interactive 3D representation of compound growth

Mouse: Rotate view

Wheel: Zoom in/out

Effective Interest Rate Guide

The effective interest rate (EIR) represents the true annual rate of return on an investment, accounting for the effects of compounding. It's crucial for comparing different investment options with varying compounding frequencies.

Effective Interest Rate Formulas

EIR = (1 + r/n)ⁿ - 1

Continuous: EIR = e^r - 1

Future Value = P × (1 + EIR)^t

APY = EIR (when compounded annually)

Key Variables: r = nominal rate, n = compounding periods per year, t = time in years, P = principal amount. The more frequent the compounding, the higher the effective rate.

Applications: EIR is essential for comparing loans, mortgages, savings accounts, bonds, and investment products. Banks often advertise nominal rates, but the effective rate determines actual returns.

Compounding Effect: Daily compounding typically yields only slightly more than monthly compounding, while the jump from annual to monthly compounding is more significant. Continuous compounding represents the mathematical limit.

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