Equivalent Interest Rate
Easily switch between different interest rate quoting conventions. This calculator helps you find the exact nominal rate required to match a specific annual yield across different timeframes.
What is an equivalent interest rate?
Two interest rates are said to be equivalent if they yield the same effective annual rate (EAR) when compounded over different periods. For example, a 6.0% rate compounded annually is equivalent to a 5.84% rate compounded monthly.
Why do I need to convert interest rates?
Converting interest rates allows you to compare financial products that use different compounding frequencies. It is also necessary when calculating payments for a loan where the compounding period doesn't match the payment period.
How is the conversion calculated?
The formula used is based on the effective annual rate: (1 + r₁/n₁)ⁿ¹ = (1 + r₂/n₂)ⁿ², where r is the nominal rate and n is the frequency.
Is APR the same as the equivalent rate?
Not necessarily. APR usually refers to the nominal annual rate including fees. The equivalent rate is a strictly mathematical conversion of the interest portion across different compounding timelines.