Effective Annual Rate
Calculator
Results
- Effective annual rate
- 12.682503%
Results
| Effective annual rate | 12.682503 |
formula-map diagram
- Effective annual rate
- 12.682503%
Formula breakdown
Formula
EAR = (1 + i ÷ n)^n − 1= 12.682503013197
Note
This is a simplified financial model for educational purposes and does not constitute financial advice.
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See all →Frequently asked questions
What does the effective annual rate tell me that the nominal rate doesn't?+
The nominal rate ignores how often interest compounds within the year, while the effective annual rate shows the true annual growth rate after accounting for that compounding, making it the correct number to use when comparing accounts with different compounding schedules.
Why is the effective rate always higher than the nominal rate?+
Whenever compounding happens more than once a year, interest earned in early periods starts earning its own interest before the year ends, which pushes the true annual return above the simple nominal rate — the only exception is annual compounding, where they are equal.
How much does compounding frequency actually change the effective rate?+
The jump from annual to monthly compounding is usually more noticeable than the jump from monthly to daily, since each additional compounding period adds a diminishing amount, so the gains taper off quickly even as compounding gets more frequent.
Should I compare loan offers using nominal rate or effective rate?+
Always compare using the effective annual rate when compounding frequency differs between offers, since a lower nominal rate compounded more frequently can end up costing more than a higher nominal rate compounded less often.
Does the effective annual rate include fees like an APR does?+
No, the effective annual rate only adjusts for compounding frequency on the stated interest rate — it does not include fees or other charges, which is what distinguishes it from an APR calculation used for loan comparisons.