The NOMINAL function in Excel helps you calculate the nominal annual interest rate when you know the effective interest rate and the number of compounding periods per year. Effective Rate = Actual rate you earn (includes compounding) Nominal Rate = Stated rate (ignores compounding) In simple terms: NOMINAL gives you the “advertised” annual interest rate based on how many times the interest is compounded.

The EFFECT function in Excel calculates the effective annual interest rate (EAR) or annual equivalent rate (AER) based on the nominal interest rate and the number of compounding periods per year.