EAR Calculator (Effective Annual Rate)
Enter a nominal rate and how often it compounds to see the effective annual rate you actually earn or pay.
- Free
- No sign-up
Enter a nominal rate and compounding frequency to see the EAR.
Worked example
With these example inputs:
- Nominal interest rate22%
- Compounding frequency365
Effective annual rate: 24.6%
- Nominal rate22.0%
- Effect of compounding2.6%
Frequently asked questions
How is the effective annual rate calculated?
Take one plus the nominal rate divided by the number of periods, raise it to that number of periods and subtract one. A 6% nominal rate compounded monthly gives an EAR of about 6.17%.
Why does the EAR exceed the nominal rate?
Because each period's interest earns interest in later periods. The more often compounding happens, the larger the gap between the nominal rate and the effective rate.