Effective Interest Rate Calculator

About this calculator

The effective annual rate (EAR), sometimes called the annual percentage yield, converts a nominal interest rate into the real rate you actually earn or pay once compounding is taken into account. The formula is EAR = (1 + i/n)^n − 1, where i is the nominal annual rate and n is the number of compounding periods per year. Because interest earned during one period starts earning interest itself in the next, more frequent compounding — monthly versus annually, or daily versus monthly — always pushes the effective rate above the stated nominal rate.

This distinction matters for comparing financial products fairly: two loans or savings accounts advertising the same nominal rate can have different real costs or yields if they compound on different schedules. Regulators require lenders to disclose an APR, but APR does not always fully reflect compounding frequency the way EAR does. This calculator takes the nominal annual rate and the number of compounding periods per year to compute the true effective annual rate.