Effective Annual Rate Calculator
Convert nominal interest rates with different compounding into one effective yearly rate, so they can be compared.
About the Effective Annual Rate Calculator
Enter the nominal (stated) yearly rate and how often it compounds. The calculator shows the effective annual rate, and a chart of the same nominal rate under every compounding frequency.
Two loans or deposits with the same nominal rate cost or earn different amounts if they compound at different frequencies. The effective annual rate (EAR) states each as if compounded once a year, so they can be compared fairly.
The formula
EAR = (1 + r/n)ⁿ − 1
- r
- nominal yearly rate as a decimal
- n
- compounding periods a year: 1, 2, 4, 12 or 365
Worked example
12% a year, compounded monthly
- Monthly rate: 12% ÷ 12 = 1%
- EAR = 1.01¹² − 1 = 12.6825%
- Quarterly gives 12.5509% and daily 12.7475%
Things to keep in mind
- Fees are not included; APR on loans can include some fees, so compare like with like.
Questions people ask
Is EAR the same as APY?
Yes, mathematically; APY is the name used for savings accounts.
Is 12% monthly the same as 1% a month?
Nominally yes, but the effective yearly rate is 12.68%.
Does more frequent compounding always help?
For savers yes, slightly; for borrowers it costs slightly more. The gain from monthly to daily is small.