The effective interest rate is the percentage a balance actually grows over a period once compounding has done its work. Most people know it in its annual form — the effective annual rate or APY — but real questions are often about other spans of time: how much will 6% compounded daily earn over a 90-day term, or what does a rate add up to over 18 months or 10 years? This calculator answers that for any period and shows the annual figure alongside.
How to use the effective interest rate calculator
- Enter the nominal annual rate — the stated rate or APR.
- Choose how often interest is compounded.
- Enter the time period in days, months or years.
- Optionally enter an amount to see the interest in dollars.
- Read the effective rate for your period, the effective annual rate and the simple-interest comparison, then scan the table of common periods.
Effective rate formula
For a nominal rate r compounded m times a year over t years:
Set t = 1 to get the effective annual rate. Days are converted with t = days ÷ 365 and months with t = months ÷ 12.
Worked example
A $25,000 deposit earns 6% compounded daily for 90 days:
t = 90 ÷ 365 = 0.246575 years; m × t = 90 daily periods
Rate per day: 0.06 ÷ 365 = 0.00016438
Effective rate: (1.00016438)90 − 1 = 1.4903%
Interest: 25,000 × 0.014903 = $372.58
Simple interest for the same 90 days would be 6% × 0.246575 = 1.4795%, or $369.86. Over a full year the rate is 6.1831% effective.
How the effective rate builds over time
For 6% compounded daily:
| Period | Effective rate | Simple rate |
|---|---|---|
| 1 month | 0.5012% | 0.5% |
| 6 months | 3.0452% | 3% |
| 1 year | 6.1831% | 6% |
| 5 years | 34.9826% | 30% |
| 10 years | 82.2029% | 60% |
| 30 years | 504.8753% | 180% |
Over short periods the effective and simple rates are almost identical. Over decades they diverge enormously, which is the whole case for long-term compounding.
When to use a period-specific effective rate
Short-term deposits and CDs
A 3- or 6-month CD quotes an APY, but you only hold it for part of a year. The effective rate for the actual term tells you what you will receive at maturity.
Comparing offers with different terms
An 18-month promotion and a 12-month one are easier to compare once both are converted to an effective rate per year — or both to the same holding period.
Interest owed for part of a year
If a balance accrues interest for a few months, the period’s effective rate gives the interest directly.
To convert only between nominal and annual rates, use the effective annual rate calculator or the nominal interest rate calculator. For deposits that grow with regular contributions, the compound interest calculator is the better fit.
Results are estimates. Banks may use a 360-day year, credit interest monthly regardless of compounding, or apply different rules at maturity.
Frequently asked questions
What is an effective interest rate?
It is the actual percentage growth of a balance over a stated period, after compounding. The effective annual rate is the most common version, but you can find the effective rate for any period — 90 days, 18 months or 10 years — with the same formula.
How do I calculate the effective rate for a period shorter than a year?
Use (1 + r/m)^(m × t) − 1, with t in years. For 6% compounded daily over 90 days, t = 90 ÷ 365 and the effective rate is (1 + 0.06/365)^90 − 1 = 1.4903%.
Why is the effective rate higher than the simple rate?
Simple interest multiplies the rate by the time and never adds interest to the balance. Compounding credits interest along the way, so later interest is earned on a larger balance. Over 10 years, 6% compounded daily is 82.2% effective versus 60% simple.
Is the effective interest rate the same as APY?
APY is the effective rate over exactly one year, as disclosed on US deposit accounts. The effective rate for other periods is useful for short-term deposits, holding periods on investments or interest on a balance for part of a year.