EAR Calculator — Effective Annual Rate
Enter a nominal annual rate and compounding frequency to find the true Effective Annual Rate (EAR) — what you actually earn or pay per year once compounding is factored in.
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Liitmissagedus
The actual annual return after accounting for compounding
- 1
Rate as decimal
r = 6% ÷ 100 = 0,06 - 2
Periodic rate
r ÷ n = 0,06 ÷ 12 = 0,005 - 3
Compounded base
1 + 0,005 = 1,005Growth factor per compounding period. - 4
Effective Annual Rate
1,005ⁿ − 1, n = 12 = 6,1678
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EAR = (1 + r/n)^n − 1 for discrete compounding, or e^r − 1 for continuous. It converts a nominal rate into the actual annual return after compounding. The higher the compounding frequency, the larger the gap between the stated rate and the EAR.
Valem
How this is calculated
The nominal interest rate is the rate a bank or lender advertises before taking compounding into account. When interest compounds more than once a year, each period's interest is added to the principal and itself earns interest in subsequent periods. The result is that the actual return per year — the Effective Annual Rate — is always at least as high as the nominal rate, and increases with the compounding frequency.
For discrete compounding, the formula is EAR = (1 + r/n)^n − 1, where r is the nominal rate as a decimal and n is the number of compounding periods per year. Daily compounding (n = 365) produces a slightly higher EAR than monthly (n = 12), which is slightly higher than quarterly (n = 4), and so on. When the compounding frequency approaches infinity, the limit of this formula is continuous compounding: EAR = e^r − 1, where e ≈ 2.71828.
The difference between the nominal and effective rate is the "compounding premium". For most consumer rates (3–8%), the premium is small — a 6% nominal rate compounded monthly gives an EAR of 6.1678%. At high nominal rates or very frequent compounding the premium grows more substantial. EAR is also called APY (Annual Percentage Yield) in the US deposit context, and is the figure used for fair comparison of savings accounts and loans with different compounding schedules.
Korduma kippuvad küsimused
APR (Annual Percentage Rate) is a nominal rate — it states the periodic rate times the number of periods without compounding. EAR (or APY) converts APR into the true annual return by accounting for compounding. A 12% APR compounded monthly is a 1% monthly rate that compounds to an EAR of 12.68%.
Yes, for the same nominal rate. Daily compounding produces a higher EAR than monthly, which beats quarterly, which beats annual. The gains diminish quickly as frequency increases — the gap between daily and continuous compounding is negligible for typical rates.
Whenever you are comparing savings accounts, CDs, bonds, or loans that quote different compounding schedules. The nominal rate alone is misleading when the compounding periods differ — EAR puts them all on the same annual basis so you can make a true apples-to-apples comparison.
Tuntud ka kui
TG we-Calculate Editorial Team. (2026). EAR Calculator — Effective Annual Rate [Online calculator]. TG we-Calculate. https://we-calculate.com/et/calculator/ear-calculator
TG we-Calculate Editorial Team. "EAR Calculator — Effective Annual Rate." TG we-Calculate. 2026. https://we-calculate.com/et/calculator/ear-calculator.
TG we-Calculate Editorial Team, "EAR Calculator — Effective Annual Rate," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/et/calculator/ear-calculator
@misc{wecalculate_ear_calculator, title = {EAR Calculator — Effective Annual Rate}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/et/calculator/ear-calculator}}, year = {2026}, note = {TG we-Calculate} }
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