Effective Annual Rate Calculator (EAR / APY)
Convert a nominal interest rate into its effective annual rate (EAR), also called APY. Enter the nominal rate and how many times interest compounds per year to see the real yearly return once compounding is taken into account.
Enter the nominal rate and the number of compounding periods per year to see the effective annual rate.
How it works
What is the effective annual rate?
The effective annual rate (EAR), also known as the annual percentage yield (APY), is the actual yearly rate you earn or pay once compounding is included. A nominal rate alone hides the effect of interest being added several times a year.
The formula is ((1 + (nominal_rate/100)/n)^n − 1) × 100, where n is the number of compounding periods per year. The more frequently interest compounds, the higher the effective rate.
Why compounding frequency matters
A 12% nominal rate compounded monthly is not the same as 12% compounded once a year. Monthly compounding produces an effective rate of about 12.68%, because each month's interest also earns interest.
Using the effective annual rate lets you compare loans, savings accounts, and investments on equal footing, no matter how often each one compounds.
Frequently asked questions
›What is the difference between nominal rate and effective rate?
The nominal rate is the stated annual rate before compounding. The effective annual rate reflects what you actually earn or pay once compounding within the year is included.
›Is APY the same as EAR?
Yes. Annual percentage yield (APY) and effective annual rate (EAR) describe the same value: the true yearly rate after compounding.
›What should I enter for compounding periods?
Use 1 for annual, 2 for semi-annual, 4 for quarterly, 12 for monthly, and 365 for daily compounding.
›Why is the effective rate higher than the nominal rate?
Because interest earned during the year is added to the balance and itself earns interest. More frequent compounding raises the effective rate.
›Does this calculator work for both loans and savings?
Yes. The math is the same. For savings it shows your real return; for loans it shows the true annual cost.
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