Compound Interest Rate Tool

Effective Interest Rate Calculator

Q: Is EAR the same as APY?

Both generally express the annual effect of compounding.

Q: Why is EAR higher than the nominal rate?

Interest added during the year begins producing additional interest.

Convert a nominal annual rate into an effective annual rate using monthly, daily or other compounding frequencies.

Enter the interest details

What is an effective interest rate?

The effective annual rate—also called EAR or effective annual yield—shows the annual rate after accounting for compounding. It makes rates with different compounding schedules easier to compare.

EAR = (1 + Nominal rate ÷ Compounding periods)^{Compounding periods} − 1

Nominal rate vs. effective rate

The nominal rate does not include the effect of interest being added during the year. When interest compounds more than once annually, the effective rate is normally higher than the nominal rate.

Term	Meaning
Nominal rate	Quoted annual rate before compounding
Periodic rate	Rate applied during each compounding period
Effective annual rate	Annual rate including compounding
APY	Common savings term for effective annual yield

Frequently asked questions

Is EAR the same as APY?

They generally express the annual effect of compounding, though terminology depends on the financial product and jurisdiction.

Why is EAR higher than the nominal rate?

Interest earned or charged during the year begins producing additional interest.

What is continuous compounding?

It assumes compounding occurs continuously and uses the exponential function.