Calculate the real cost of borrowing or return on investment with our Effective Annual Rate (EAR) Calculator
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What our tool does?
Compute the effective annual rate from a nominal rate and compounding frequency. The calculator uses the industry‑standard formula EAR = (1 + r/m)^m – 1, where r is the nominal annual rate (expressed as a decimal) and m is the number of compounding periods per year This formula reflects the way interest accumulates over multiple periods and gives you the actual annualized rate. For continuous compounding, we use the exponential form EAR = e^{r} − 1
Convert an effective annual rate back to a nominal rate and compounding frequency.
If you know the EAR and the compounding frequency, our tool can compute the equivalent nominal rate that financial institutions often advertise.
Why effective annual rate matters
Borrowers and investors often see both nominal and effective rates advertised. The effective annual rate is the true yearly interest rate; it accounts for how often interest is added to the balance. As Investopedia notes, frequent compounding increases the effective rateand helps consumers compare offers from different banks Without considering the EAR, borrowers may underestimate how expensive a loan is, and investors might misjudge returns Use our calculator to get an accurate picture before you commit.
How to use the EAR calculator?
Enter the nominal interest rate. Specify the annual nominal rate quoted by your bank or lender.
Choose the compounding frequency. Select how often interest is compounded (monthly, quarterly, semi‑annual, daily, or continuous). Our drop‑down menu includes all common frequencies used in finance, similar to the options on CalculatorSoup.
Click “Calculate”. The tool computes the effective annual rate using the formula above. It also displays the effective rate per period and, optionally, the future value over a chosen term.
Explore advanced options. If you need to convert an effective rate back to a nominal rate or project the future value of an investment, expand the advanced section for additional fields. These features differentiate our tool from many competitors that only compute EAR.
Practical example
Suppose you’re considering two car‑loan offers. Bank A quotes a nominal rate of 7.24% compounded quarterly, while Bank B offers 7.18% compounded weekly. According to CalculatorSoup’s sample calculation, both loans result in an effective annual rate of about 7.439%. Our EAR calculator quickly verifies this by computing EAR_A = (1 + 0.0724/4)^4 – 1 and EAR_B = (1 + 0.0718/52)^52 – 1. Because the effective rates are essentially the same, you can then evaluate other loan terms (fees, repayment schedule) to make an informed decision.
Trust and transparency
Referencing reliable sources. Definitions, formulas and examples in our guides cite trusted finance texts and authoritative websites such as Investopedia and CalculatorSoup
Ensuring professional review. Our team includes finance graduates and mathematicians. Each calculator and article is peer‑reviewed to ensure accuracy. Although no tool can offer financial advice for every individual situation, we provide calculations based on established formulas and highlight limitations (for example, that fees and taxes are not included in the EAR
Maintaining transparency. We explain exactly how results are calculated, provide example calculations, and encourage users to consult multiple sources. We also disclose authorship and update dates so you know when the content was last reviewed.