Effective Annual Rate (EAR) Calculator
A nominal annual rate (APR) does not tell the whole story because it ignores how often interest compounds. The effective annual rate (EAR) is the true yearly cost or yield once compounding is accounted for, and it is the fair way to compare financial products.
Enter the nominal annual rate and how many times per year interest compounds. The calculator returns the EAR — the rate that, compounded once a year, gives the same result.
Use it whenever a loan or savings product quotes a nominal rate but compounds more than once a year — the true yearly cost or yield is always higher than the headline number.
Enter your values to see the result.
How this is calculated
A nominal annual rate (APR) ignores how often interest compounds, so it understates the true yearly cost or yield. The effective annual rate (EAR) corrects this: EAR = (1 + nominal ÷ m)^m − 1, where nominal is the annual rate as a decimal and m is the number of compounding periods per year. The result is the rate that, compounded once a year, would produce the same growth or cost.
The more frequently interest compounds, the larger the gap between APR and EAR, because each period’s interest starts earning interest sooner. A 12% nominal rate compounded monthly gives an EAR of about 12.68%, while the same rate compounded daily gives about 12.75%.
The model is a pure conversion with no assumptions about principal or time. It does not include loan fees (which APR disclosures may bundle in differently across markets), tiered or promotional rates, or the effect of regular payments. Use it to compare like-with-like on the compounding frequency each product actually uses.
Worked example
A credit card quotes a 12% nominal APR, compounded monthly.
- 1m = 12 compounding periods per year.
- 2EAR = (1 + 0.12 ÷ 12)^12 − 1 = 1.01^12 − 1 ≈ 0.1268.
- 3Effective annual rate ≈ 12.68% — the true yearly cost, about 0.68 points above the headline APR.
Frequently asked questions
- Why is EAR higher than APR?
- Because interest earned earlier in the year itself earns interest. The more frequent the compounding, the larger the gap between APR and EAR.
- What compounding frequency is common?
- Savings accounts often compound monthly (12) or daily (365); mortgages often compound monthly. Credit cards may compound daily.
- Should I compare loans by APR or EAR?
- EAR, when available, is the honest comparison because it includes compounding. APR is useful but can understate the true cost when compounding is frequent.
- Why is EAR higher than APR?
- Because interest earned earlier in the year itself earns interest. The more frequent the compounding, the larger the gap. Daily compounding leaves a bigger gap than monthly, which leaves a bigger gap than annual.
- Should I compare loans by APR or EAR?
- EAR, when available, is the honest comparison because it includes compounding. APR is useful but can understate the true cost when compounding is frequent, so two products with the same APR can have different EARs.
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Method: effective annual rate conversion from nominal APR. No external data source. Last updated: September 2026.
These results are indicative estimates for planning only and do not constitute financial advice. Actual loan terms, tax rules, investment returns and product conditions vary by country, provider and your personal circumstances. Always confirm figures with your bank, tax authority or a qualified financial adviser before making decisions.