The effective interest rate is a convenient way to compare different bank accounts and their conditions. See also more information on the effective interest rate.
Unfortunately the effective interest rate is difficult to compute in
practice. Many bank accounts only offer the highest nominal rates when
the client allows them to charge certain costs usually when the client
withdraws money. These transaction costs complicate the formulas for
the effective interest rate. In addition they make the effective
interest rate dependent on what you actually do with your savings
account: when you open it, when you withdraw money from it and when you
close it.
This numerical example computes the effective interest rate taking many
types of transaction costs into account. Enter below the initial
savings amount, the nominal interest rate, the number of periods in
which you make deposits to your savings and any costs your bank charges
you. The computation will take the entered number of periods into
account plus one. Therefore in the computation there will be an extra
period after the last deposit.
The result are not always exact: in case the interest period is
unequal to the time between the periodic deposits the computed interest
rate is an approximation.
