The effective interest rate calculator works out effective interest rate (eir), final balance and final balance from annual interest rate, compounding frequency, initial balance, term and e. Enter what you have and the relationship is applied straight away, so you get the answer without working through the algebra yourself.
What Is the Effective Interest Rate Calculator?
The effective interest rate calculator takes annual interest rate, compounding frequency, initial balance, term and e and turns them into effective interest rate (eir), final balance and final balance.
It is the kind of calculation you would otherwise do on the back of an envelope: mechanical, repeatable and easy to get subtly wrong without noticing.
How the Effective Interest Rate Figure Is Built
Each result is calculated from the ones before it, so the working is fully visible. That matters when the answer is going to be quoted to somebody else and you need to be able to explain where it came from.
The figures are exactly as good as the assumptions underneath them. Check the rates, the periods and the tax treatment before you rely on the result.
Reading the Result Sensibly
A small change in an input can move the result by much more than you would expect, particularly where the calculation divides by one of the figures you supplied. That is worth understanding before you rely on a figure.
For anything that will be committed to, write the inputs down beside the result. A number you can reproduce is worth far more than one you cannot explain.
A Worked Example
Working through an example, with annual interest rate set to 10, compounding frequency set to 1.000000000000000, initial balance set to 5, the calculator returns effective interest rate (eir) of 10, and effective interest rate (eir) (effective rate continous comp freq) of 100,000,000,000,000,020,000, and final balance of 605. Substitute your own figures and the same steps produce the same kind of answer.
Frequently Asked Questions
What do I need to work out effective interest rate (eir)?
Enter annual interest rate, compounding frequency, initial balance, term and e. The calculator then works through the relationship and reports effective interest rate (eir), final balance and final balance.
What does the effective interest rate actually calculate?
It takes annual interest rate, compounding frequency, initial balance, term and e and converts them into effective interest rate (eir), final balance and final balance using the standard relationship for this problem. Each step is applied in turn, so every output is traceable back to the numbers you typed in.
How should I enter annual interest rate?
Use the value you actually have, in the unit shown next to the field. Enter every value in the same unit system. The calculator assumes the figures you supply are consistent, so it cannot correct a mistake that happens before the calculation starts.
Is the answer exact?
It is as exact as the formula and the inputs allow. The method itself is the standard one for this problem, so the only sources of error are the figures you enter and the precision you ask for.
Do I have to fill in every field?
Only the fields a particular result depends on. If you leave one blank, the results that need it simply show a note instead of a number, and everything else still works.