Effective Annual Rate Calculator
Enter a nominal annual interest rate and how often it compounds to find the true effective annual rate you actually pay or earn.
What Is the Effective Annual Rate?
The Effective Annual Rate (EAR), also called the annual effective yield, is the real annual return or cost of a rate once compounding is taken into account. A nominal rate quoted as “12% per year” pays or costs a different amount depending on whether it compounds annually, monthly, or daily — the EAR converts any compounding schedule into one comparable annual figure.
The Formula
EAR is calculated as EAR = (1 + r/n)^n − 1, where r is the nominal annual rate (as a decimal) and n is the number of compounding periods per year. The more frequently interest compounds, the higher the effective rate climbs above the nominal rate.
Why It Matters
Lenders and banks often advertise nominal rates because they look smaller, while the EAR reveals the true cost of borrowing or the true yield of a savings product. Comparing EAR figures side by side is the fairest way to evaluate two offers that compound on different schedules.
- Use this for general financial planning and comparison purposes only.
- This calculator does not account for fees, taxes, or account-specific terms.