# Nominal Interest

Also known as **Annual Percentage Rate (APR)**, Annual Percentage Yield, Stated Interest, Stated Rate, Quoted Interest.

A nominal interest rate is an interest rate that has a compounding frequency of **less than a year**.

A nominal interest rate is quoted as a percentage WITH a compounding frequency.

The compounding frequency indicates the number of compounding periods in a year.

When the compounding frequency is one year this is called the effective interest rate.

When banks are charging interest they quote a nominal interest rate because it is lower than the 'actual' interest rate.

10% compounded monthly is not 10% a year but is actually 10.47% a year.

### Excel Worksheet Function

__NOMINAL__ - This function returns the nominal interest rate over a period given an effective (or annual) interest rate.

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

### Comparing Nominal Interest Rates

When the compounding frequency is a year the nominal interest rate is the same as the effective interest rate.

Nominal interest rates are not comparable unless their compounding frequencies are the same.

### Confusing Words

10% compounded quarterly, means 25% every quarter

10% quoted as a 6-month investment, means 5% every six months

The reason for the annualising is to make them look "approximately" comparable

© 2022 Better Solutions Limited. All Rights Reserved. © 2022 Better Solutions Limited TopPrevNext