How to use the Excel EFFECT function

Summary

The Excel EFFECT function returns the effective annual interest rate, given a nominal interest rate and the number of compounding periods per year. Effective annual interest rate is the interest rate actually earned due to compounding.

Purpose

Get effective annual interest rate

Return value

Effective annual interest rate

Syntax

=EFFECT (nominal_rate, npery)

Arguments

nominal_rate - The nominal or stated interest rate.
npery - Number of compounding periods per year.

Usage notes

The EFFECT function calculates the effective annual interest rate, given a nominal interest rate and the number of compounding periods per year. Nominal interest rate is the stated rate on the financial product. Effective annual interest rate is the interest rate actually earned due to compounding. For example, with a nominal rate of 6.00% and interest compounded quarterly, EFFECT returns 6.09%:

=EFFECT(0.06,4) // returns 0.0614

In the example shown, the formula in D5, copied down, is:

=EFFECT(B5,C5)

Format the result as a Percentage to display with % symbol.

Notes

Npery should be an integer (Excel will truncate if not).
The nominal rate should be a number between 0 and 1.

Related functions

Excel NOMINAL Function

The Excel NOMINAL function returns the nominal interest rate, given an effective annual interest rate and the number of compounding periods per year. The effective rate is the actual rate due to compounding. The nominal rate is typically the...

Good links

Microsoft EFFECT function documentation

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