EAR Calculator
Calculate the Effective Annual Rate (EAR) from a nominal interest rate and compounding frequency.
Formula
EAR = (1 + r/n)^n − 1; Continuous: EAR = e^r − 1
- r = nominal rate; n = compounding periods per year.
- More frequent compounding → higher EAR for the same nominal rate.
- APY (Annual Percentage Yield) is the same as EAR — reflects actual return.
12% APR compounded monthly
Inputs
- Nominal Interest Rate (APR): 12 %
- Compounding Frequency: monthly
EAR = (1 + 0.12/12)^12 − 1 = (1.01)^12 − 1 ≈ 12.68%.
Frequently asked questions
What is the difference between APR and APY?
APR (annual percentage rate) is the nominal rate; APY (annual percentage yield) = EAR, which includes compounding effects.
Why does compounding frequency matter?
More compounding periods mean interest earns interest more often, increasing the actual return above the stated nominal rate.
What is continuous compounding?
The theoretical limit where compounding occurs infinitely often: EAR = e^r − 1.
Why should I compare APY not APR for savings?
For savings, compare APY — it shows the true annual return including compounding. A 4% APR compounded daily = 4.08% APY.