This equivalent interest rate calculator converts an interest rate from one compound frequency to another in order to help you see which rate is better. You can discover more on this topic below the tool.


Nominal interest rate per period (r):*
%
Compounding freq. per period (m):*
New compounding freq. per period (n):*

What is the formula for equivalent interest rate?

In case you need to compare between two or more loan or savings offers having different compounding frequencies you may find it difficult to see which rate better fits your needs, that is why whenever such comparison is required you first have to convert these quotes in a comparable effective interest rate. To do so here is the formula used:

Equivalent Interest Rate Formula

Where:

“i” is the equivalent interest rate that results for the new compounding frequency per period.

“n” is the new compounding frequency per period.

“r” is the nominal interest rate.

“m” is the initial compounding intervals per period.

Example of a calculation

Assuming an individual want to see which is the equivalent rate of a nominal annual interest rate of 4.5% compounded monthtly (m = 12), versus compounded semi-anually (n = 2). If you simplu input the data within this calculator you will get these figures:

The equivalent interest rate considering the new compouding frequency is 4.5424%

Initial compounding frequency info:

Nominal interest rate: 4.5000%

Effective interest rate: 4.5940%

Interest rate per period (considering m freq.): 0.3750%

New compounding frequency info:

Nominal interest rate: 4.5424%

Effective interest rate: 4.5940%

Interest rate per period (considering n freq.): 2.2712%

13 Apr, 2015 | 0 comments

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