Effective Annual Rate (EAR) Calculator
Enter a nominal annual interest rate and how often it compounds to calculate the effective annual rate (APY).
Effective Annual Rate (EAR) Calculator
Convert a nominal annual interest rate (APR) into its effective annual rate (APY) based on compounding frequency.
A nominal annual rate (APR) understates your true cost or return when interest compounds more often than once a year. The effective annual rate (EAR), also called APY, accounts for that compounding, so two accounts with the same APR but different compounding frequencies actually earn (or cost) different amounts.
Example
- With the default values shown above, this calculator returns: Effective Annual Rate (EAR) ≈ 6.168.
Frequently Asked Questions
Why is the effective rate higher than the nominal rate?
Because compounding means you earn (or owe) interest on previously accrued interest within the year, not just on the original principal — the more frequently it compounds, the bigger that gap becomes.
What compounding frequency should I use?
Use whatever your account or loan states: 12 for monthly, 4 for quarterly, 365 for daily, or 1 if it only compounds annually (in which case EAR equals the nominal rate).