Effective Annual Rate (EAR) Calculator
Calculate the Effective Annual Rate (EAR) for any nominal interest rate and compounding frequency. Compare EAR across annual, semi-annual, quarterly, monthly, weekly, daily, and continuous compounding with charts.
About This Calculator
The Effective Annual Rate (EAR) Calculator helps investors, borrowers, and financial professionals compute the true annual interest rate after accounting for compounding effects. Unlike the nominal (stated) interest rate, EAR reveals the actual return on investments or the real cost of loans by factoring in how frequently interest compounds.
EAR is calculated using the formula EAR = (1 + r/n)^n - 1, where r is the nominal annual rate and n is the number of compounding periods per year. For continuous compounding, the formula is EAR = e^r - 1. The calculator also displays the periodic rate and a comparison table showing how EAR changes across different compounding frequencies — from annual all the way to continuous compounding.
Whether you are comparing fixed deposit offers in India, evaluating credit card APRs in the US, or reviewing savings account AERs in the UK, this tool gives you the standardized effective rate needed for accurate comparison. The interactive chart visualizes how increasing compounding frequency affects your effective return, and the breakdown table shows EAR values side-by-side for every frequency.
Regional Notes
India: RBI requires banks to disclose EAR on deposits and loans. Use this calculator to verify FD rates quoted by SBI, HDFC, ICICI, and other banks. For example, an SBI FD at 6.5% compounded quarterly gives an EAR of 6.66%.
United States: The Truth in Lending Act (TILA) requires lenders to disclose APR and the effective rate. EAR helps compare credit card rates, mortgage APRs, and CD yields accurately. A credit card with 18% APR compounded daily has an EAR of 19.56%.
United Kingdom: The FCA requires lenders to show the Annual Equivalent Rate (AER) for savings and the Annual Percentage Rate (APR) for loans. EAR corresponds closely to AER. A savings account at 5% compounded monthly yields an EAR of 5.12%.
Frequently Asked Questions
What is Effective Annual Rate (EAR)?
The Effective Annual Rate (EAR) is the actual interest rate earned or paid on an investment or loan after accounting for the effect of compounding over a year. It is always higher than the nominal rate when compounding occurs more than once per year.
How is EAR calculated?
EAR is calculated using the 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. For continuous compounding, EAR = e^r - 1.
What is the difference between nominal rate and EAR?
The nominal rate is the stated annual interest rate without accounting for compounding. EAR includes the effect of compounding, showing the true annual return or cost. For example, 12% nominal compounded monthly gives an EAR of 12.68%.
Why is EAR higher than the nominal rate?
EAR is higher because compounding means interest earns interest multiple times per year. The more frequently interest compounds, the higher the EAR. Daily compounding produces a higher EAR than annual compounding for the same nominal rate.
How does compounding frequency affect EAR?
Higher compounding frequencies result in a higher EAR. For a 12% nominal rate: annual gives 12.00%, semi-annual gives 12.36%, quarterly gives 12.55%, monthly gives 12.68%, weekly gives 12.73%, daily gives 12.75%, and continuous gives 12.75%.
What is continuous compounding?
Continuous compounding is the theoretical limit where interest is calculated and added an infinite number of times per year. The formula is EAR = e^r - 1. It produces the highest possible EAR for a given nominal rate.
How is EAR used in India, US, and UK?
In India, banks quote EAR for fixed deposits and loans (RBI disclosure norms). In the US, the Truth in Lending Act requires lenders to disclose APR and EAR for loans. In the UK, the FCA requires lenders to show the equivalent annual rate for comparison.
Is a higher EAR always better for investments?
For investments, a higher EAR means higher returns, which is better. For loans, a higher EAR means higher cost, which is worse. Always compare EAR (not nominal rate) when evaluating different financial products.