Written and reviewed by FormulaCraft Team. Each formula on this page is run through our verification engine before publishing.
Last reviewed:
EFFECT
EFFECT returns the effective (true) annual interest rate when interest compounds more frequently than once per year. Use it to compare products that advertise nominal rates but compound at different frequencies.
Excel
=EFFECT(0.12,12)Google Sheets
=EFFECT(0.12,12)✓
Verified example
Computed by a real spreadsheet engine on the sample data below.
| Nominal Rate | Periods/Year |
| 0.12 | 12 |
| 0.1 | 4 |
| 0.06 | 2 |
| 0.08 | 365 |
=EFFECT(0.12,12)→0.1268250301
Try it with your data
Edit the grid or formula, then run it through a real spreadsheet engine — no signup.
Sample data — click any cell to edit
Runs server-side · free · no signup
How it works
- 1Find the nominal annual rate (e.g. 12%) and the number of compounding periods per year (e.g. 12 for monthly).
- 2Enter =EFFECT(nominal_rate, npery) to get the effective annual rate.
- 3Compare effective rates across products to identify the true best deal.
Need a version for your data?
Try: “What is the effective annual rate of a 12% nominal rate compounded monthly?”