Convert the rate
EAR = (1 + r / n)^n − 1
With a 12% nominal rate and monthly compounding, n = 12, so effective annual growth is about 12.68% before fees and taxes. With annual compounding, nominal and effective rates are equal.
Compare like with like
First align currency, term, access restrictions, contribution rules, and risk. Next identify whether the advertised number is nominal, APY/AER, or an expected market return. Deduct mandatory costs and consider jurisdiction-specific taxes only after understanding their tax base.
| Measure | Question it answers |
|---|---|
| Nominal rate | What annual rate is quoted? |
| Compounding frequency | How often does the base change? |
| Effective annual rate | What is one-year compounded growth? |
| Net real return | What remains after costs and inflation? |
How Money Stack interprets the input
The calculator divides the entered annual rate by 12. In Reinvest mode, it therefore treats the input as a nominal annual rate compounded monthly. If a provider gives you an effective annual yield, convert it before using this field or your scenario will overstate growth.
Three category errors
- Comparing a guaranteed insured deposit rate with a risky expected return as if both were promises.
- Ignoring whether returns are distributed or retained.
- Calling a pre-fee rate “net return.”
The Investor.gov calculator exposes compounding frequency as a separate input. Always use the official disclosure terminology applicable in your country.