Effective Annual Rate Calculator

📊 EAR Calculator

Enter your investment details to calculate effective annual rate

Principal Amount ($)

Nominal Interest Rate (%)

Compounding Frequency

Time Horizon (Years)

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📈 Results

Your effective annual rate calculation results

Principal: $0.00

Nominal Rate: 0.00%

Compounding: -

Effective Annual Rate (EAR): 0.00%

Future Value: $0.00

📊 2D Visualization

Interest rate comparison and growth analysis

🎯 3D Interactive Chart

Three-dimensional rate visualization

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📚 Understanding Effective Annual Rate

Learn the fundamentals of EAR and how it impacts your investments

The Effective Annual Rate (EAR) represents the real annual rate of return on an investment or loan, taking into account the effect of compounding interest. Unlike the nominal rate, EAR gives you the true picture of what you'll earn or pay over a year.

EAR Formula

EAR = (1 + r/n)ⁿ - 1

Where:
r = nominal interest rate
n = number of compounding periods per year

Continuous Compounding

EAR = e^r - 1

Where:
e = Euler's number (≈2.71828)
r = nominal interest rate

Precise Comparisons

Compare investments with different compounding frequencies on equal terms

Real Returns

Understand the actual return you'll receive, not just the stated rate

Investment Planning

Make informed decisions about where to invest your money

Loan Analysis

Evaluate the true cost of borrowing with different loan structures

❓ Frequently Asked Questions

What's the difference between APR and EAR?

APR (Annual Percentage Rate) includes fees and costs, while EAR focuses purely on the compounding effect of interest. EAR shows the true annual return from compounding alone.

Why is EAR higher than the nominal rate?

EAR is higher because it accounts for compounding. When interest is compounded, you earn interest on your interest, which increases the effective return.

How often should investments compound?

More frequent compounding is better for investors. Daily compounding will yield higher returns than annual compounding, though the difference diminishes as frequency increases.

What is continuous compounding?

Continuous compounding is theoretical compounding that occurs infinitely often. It represents the maximum possible return from compounding and uses the mathematical constant e.

💡 Investment Tips & Best Practices

For Investors

TIP

Look for investments with more frequent compounding periods to maximize returns

TIP

Use EAR to compare different investment products fairly

TIP

Consider the impact of taxes on your effective returns

TIP

Reinvest dividends and interest to benefit from compounding

For Borrowers

TIP

Choose loans with less frequent compounding to reduce costs

TIP

Pay attention to both APR and EAR when comparing loans

TIP

Make payments early to reduce the compounding effect

TIP

Consider the total cost of borrowing, not just the rate

Advanced Effective Annual Rate Calculator