Loans & Debt

Effective Annual Rate (EAR) Calculator

See the true yearly rate once compounding is included.

By TheCalcTools Updated Formula checked and tested

Your numbers

%

Your results

Effective annual rate
Effective annual rate
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Extra over the nominal rate
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With continuous compounding
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Effective Annual Rate (EAR) Calculator by TheCalcTools

How the Effective Annual Rate (EAR) Calculator works

Enter the nominal rate and how often interest compounds.

The nominal rate is divided across each compounding period.

Compounding those periods gives the effective rate for the full year.

The formula

EAR = (1 + r ÷ m)^m − 1continuous: EAR = e^r − 1

Worked example

Using the default values shown in the calculator:

Nominal annual rate12 %
CompoundingMonthly
  1. 12% compounded monthly: (1 + 0.12 ÷ 12)¹² − 1.
  2. EAR = 12.68%, which is 0.68% above the nominal rate.
  3. With continuous compounding it would be 12.75%.

Result:

Effective annual rate12.68%
Extra over the nominal rate0.68%
With continuous compounding12.75%

Frequently asked questions

What is the difference between APR and EAR?

APR is typically the nominal rate; EAR (like APY on savings) includes compounding. A loan at 12% APR compounding monthly has an EAR of 12.68%.

Does more frequent compounding always help?

It raises the effective rate, but with diminishing returns. Daily and continuous compounding are very close.

Sources and further reading

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This calculator gives estimates for information only. It is not financial advice, and your lender's or provider's figures will govern. Rates, fees and rules vary. See our disclaimer.