Effective Annual Rate (EAR)
Don't rely on stated nominal rates alone. This calculator reveals the real interest you'll earn or pay by accounting for how often interest is added to your balance.
What is the Effective Annual Rate (EAR)?
The Effective Annual Rate (EAR) is the real return on an investment or the real cost of a loan when compounding occurs more than once a year. It accounts for the interest-on-interest effect.
How is EAR different from Nominal Rate?
The nominal rate is the stated annual rate (the one banks usually advertise). The EAR is the actual rate you pay or earn. If interest compounds more than once a year, the EAR will always be higher than the nominal rate.
What is the EAR formula?
EAR = (1 + r/n)ⁿ - 1, where r is the nominal annual interest rate and n is the number of compounding periods per year.
Why should I use EAR to compare loans?
Different lenders use different compounding frequencies (daily, monthly, quarterly). EAR standardizes all of them to an annual basis, allowing you to see which loan is truly the least expensive.