Effective Interest Rate Calculator
Calculate the effective annual rate (EAR) from a nominal interest rate and compounding frequency.
Rate Details
Results
Effective Annual Rate (EAR)
0%
Nominal Rate
0%
What this means:
About Effective Interest Rate
The effective annual rate (EAR) is the actual annual rate of return, taking into account the effect of compounding interest. It's higher than the nominal rate when interest compounds more than once per year.
Formula: EAR = (1 + r/n)^n - 1
Where:
Where:
- EAR = Effective annual rate
- r = Nominal interest rate (decimal)
- n = Number of compounding periods per year
Why It Matters
For Borrowers
- Shows true cost of a loan
- Helps compare loans with different compounding
- Higher EAR means higher actual interest cost
For Investors
- Shows true return on investment
- Helps compare investments with different compounding
- Higher EAR means better actual returns
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