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An interest rate including interest on principal as well as compounded amount is termed an effective interest rate. This page offers an effective interest rate calculator which estimates the effective interest rate for you.
Put in nominal interest rate( interest rate on principal amount), compounding period( duration b/w consecutive compounding ), and press the calculate to get answers for effective interest rate both for compounding period as well as for annum(year).
The effective period interest rate is equal to the nominal annual interest rate divided by the number of periods per year n:
Effective Period Rate = Nominal Annual Rate / n
The effective interest rate is equal to 1 plus the nominal interest rate in percent divided by the number of compounding persiods per year n, to the power of n, minus 1.
Effective Rate = (1 + Nominal Rate / n)n - 1
Utilizations of Effective Interest Rates: EIRs are significant in light of the fact that they permit clients to measure and effectively look at the expenses of a comparative monetary item among different banks or to think about the expenses or returns among items that have various charges and different circumstances.