The effective annual rate shows the real yearly cost of a loan or return on savings once compounding is included. It is the right way to compare offers that compound at different frequencies.
How to use the EAR Calculator – Effective Annual Rate
- Nominal annual interest rate
- Compounding frequency
- Every result field is editable: type into Effective annual rate (EAR) and Nominal annual interest rate plus every other field update to match.
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the nominal annual rate and the compounding frequency.
Tips
- Use the nominal annual rate and pick the compounding frequency your bank or broker states.
- Small differences in return or fees compound into large differences over decades.
- Run the calculation with a cautious, a central and an optimistic return to see the range of outcomes.
- Past returns do not guarantee future returns – nothing here is investment advice.
Common mistakes to avoid
- Comparing an APR with an APY or effective rate.
- Ignoring inflation, taxes and fees when judging a real return.
- Entering a percentage as a decimal (5 instead of 0.05 is correct here).
Inputs explained
| Field | What to enter |
|---|---|
| Nominal annual interest rate | In % |
| Compounding frequency | Choose one: Yearly, Semi-annually, Quarterly, Monthly … |
Example values
How the main result changes when Nominal annual interest rate changes and everything else stays at the example values above:
| Nominal annual interest rate (%) | Effective annual rate (EAR) (%) |
|---|---|
| 6 | 6.1678 |
| 9 | 9.3807 |
| 12 | 12.6825 |
| 15 | 16.0755 |
| 18 | 19.5618 |
| 24 | 26.8242 |
Formula
EAR = (1 + r ÷ n)^n − 1Continuous: EAR = e^r − 1Periodic rate = r ÷ nWorked example
Inputs — Nominal annual interest rate: 12 %; Compounding frequency: Monthly.
Results — Effective annual rate (EAR) = 12.6825 %; Rate per compounding period = 1 %.
Frequently asked questions
What is the effective annual rate?
The actual yearly rate after compounding.
Is EAR the same as APY?
Yes – APY is the name used for savings accounts.
Why is EAR higher than the nominal rate?
Interest earned during the year earns interest itself.
What formula does the EAR Calculator – Effective Annual Rate use?
EAR = (1 + r ÷ n)^n − 1.