### Effective Interest

Also known as **Annual Effective Rate (AER)**, Equivalent Annual Rate (EAR), Effective Annual Yield.

An effective interest rate is an interest rate that has a compounding frequency of **one year**.

This is the annual interest rate that is actually received taking compounding into consideration.

An effective interest rate is quoted as a percentage.

#### Excel Worksheet Function

__EFFECT__ - This function returns the effective (or annual) interest rate given a nominal interest rate.

This table shows the effective interest rates for a list of nominal interest rates and compounding frequencies.

#### Comparing Effective Interest Rates

Effective interest rates can be easily compared.

If you have two interest rates with different compounding frequencies, they can be easily converted to effective interest rates.

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