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Identify the quotation before converting it
A nominal annual rate of 6% compounded quarterly specifies 1.5% for each quarter. Compounding that quarterly factor four times produces an effective annual rate of approximately 6.1364%. An effective annual rate of 6% already states the full one-year growth factor of 1.06.
Compare matching one-year growth factors
| Quote | One-year factor |
|---|---|
| 6% nominal, quarterly | 1.015⁴ = 1.061363550625 |
| 6.1% effective annual | 1.061 |
Keep other terms outside the rate-only conclusion
The first stated factor is slightly higher in this mathematical example. A real account comparison also needs fees, taxes, risk, access restrictions and how interest is actually credited. The calculated factor does not rank the whole product.
Use an effective rate for the interval you need
To obtain a monthly effective rate from an effective annual rate, take the twelfth root of the annual growth factor and subtract one. Dividing an effective annual percentage by twelve generally does not give the same monthly factor.