All versions
Financial
The Excel EFFECT function converts a nominal annual interest rate to the effective annual rate, accounting for compounding frequency.
Quick answer:
=EFFECT(6%, 12) // about 6.17% APY
Syntax
=EFFECT(nominal_rate, npery)
| Argument | Description | |
|---|---|---|
nominal_rate | Required | The stated annual (nominal) rate. |
npery | Required | Compounding periods per year. |
How to use it
EFFECT converts a nominal annual interest rate to the effective annual rate, accounting for compounding frequency.
=EFFECT(6%, 12) // 6% compounded monthly = ~6.17%
Try it: interactive demo
Live demo
This is the formula pattern EFFECT uses — copy it into Excel with your own numbers.
Result: computed in Excel
Practice workbook
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Frequently asked questions
Why is the effective rate higher?
Compounding earns interest on interest, so monthly compounding beats the stated annual figure.
EFFECT vs NOMINAL?
They’re inverses: EFFECT goes nominal→effective; NOMINAL goes effective→nominal.
Which Excel versions support it?
All modern versions.
Why might it return #NUM! or #VALUE!?
Out-of-range arguments (e.g. negative rate or settlement after maturity) give #NUM!; non-numeric inputs give #VALUE!.
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