The total amount of interest earned or paid in a year on any financial products, loans etc. is called as the effective annual interest rate. The effective annual interest rate is also known as an effective interest rate.

So, how to calculate effective interest rate? Here is the formula: r = (1+i/n)^{ n }-1

r= effective interest rate n = no. of periods i= annual interest rate

Effective annual interest rate calculates while considering compound rates instead of static interest rates.